It’s time for insurance to introduce data standardization

It’s time for insurance to introduce data standardization | Insurance Business Canada

Insurance News

It’s time for insurance to introduce data standardization

Re/insurance group pushes for industry-wide collaboration

Insurance News

By
Gia Snape

As sustainability moves further into the spotlight for insurance stakeholders and customers alike, the industry must establish data standards to improve the quality of environmental, social, and governance (ESG) disclosures by insureds.

That was the rallying call at a forum organized by global re/insurance group Chaucer in late January. Chaucer’s sustainability experts have emphasized that uniform measurement and reporting methods would enhance progress tracking and foster greater trust among stakeholders.

“Our key message was to corral the industry towards thinking about data standardisation, making insurance an easier product to sell,” said James Wright (pictured), chief risk officer at Chaucer.

The call for standardized ESG metrics also resonates with concerns about the burden placed on brokers, who face a barrage of disparate questionnaires from various insurers.

Wright emphasized the need for collaboration to address the challenges of data standardization and to streamline processes to alleviate inefficiencies and client frustrations.

“Standardising sustainability-related information would benefit clients, brokers, and carriers alike,” he told Insurance Business.

Contents

Sustainability– the challenges and opportunities

Aside from data standardization, Chaucer’s Sustainability Forum tackled a spectrum of other pertinent industry issues related to sustainability.

The discussions encompassed the evolving landscape of ESG regulations, their impact on performance metrics, and the complexities surrounding carbon offsetting and decarbonization efforts.

One point highlighted during the forum was the significant hurdles to achieving industry-wide standardization. For instance, sustainability metrics are subjective, and quantifying certain data points, such as social impact or an entity’s carbon footprint, can be challenging.

“There is no definitive definition of what is ‘good’ in sustainability or ESG. Different stakeholders prioritize different aspects,” Wright explained. “Some firms are heavily interested in the environment and its importance. Others are more focused on social causes. How do you turn that into data? It’s incredibly difficult. So, we think there will be a core set of information and data that we fully expect the vast majority of stakeholders to be interested in.”

The role of data quality in ESG disclosures

As for the role of technology in sustainability efforts, Wright acknowledged its potential but emphasized the importance of data quality and reliability.

“While technology can aid data collection, ensuring robust and reliable data remains a challenge. Stakeholders must prioritize data accuracy to avoid pitfalls like greenwashing and regulatory challenges,” he said.

“When we talk about the data that we want to collect, it isn’t just about standardizing the data; it’s also about improving the quality and robustness of that data to help us make informed decisions.”

Navigating regulatory challenges is another critical aspect of sustainability initiatives. Industry players must stay abreast of regulatory developments to ensure compliance and strategic alignment.

“Regulatory demands are evolving, albeit fragmented. Expectations for harmonization and expanded regulatory scope are on the horizon,” said Wright.

Finally, Wright addressed the growing focus on decarbonization.

While reducing carbon usage and using carbon offsets to achieve net-zero targets is critical for organizations, he cautioned against overlooking the risks associated with carbon offsetting projects and advocated for robust risk management strategies.

“Offsetting (carbon emissions) is crucial, but understanding the associated risks is equally important. We are exploring insurance solutions to mitigate risks associated with offsetting projects,” said Wright.

What’s next for Chaucer after its sustainability forum?

Reflecting on the next steps, Wright outlined ongoing efforts to standardize data and foster more collaboration and engagement within the industry. Alignment between brokers and carriers will be crucial because brokers can provide a realistic perspective on achievable goals and “bring a sense of pragmatism” to the debate.

“We’ve seen significant improvement in this regard, with engagement from major brokers in standardizing approaches,” Wright commented.

Moving forward, Chaucer will continue to engage with market groups and stakeholders, advocating for standardized approaches and transparency. Wright also highlighted Chaucer’s partnership with Moody’s for the ESG Balanced Scorecard, which provides a standardized framework for evaluating sustainability performance, as a significant part of its efforts.

The scorecard uses up to 158 unique data points to assign scores across various ESG factors – including on the disclosure of greenhouse gas emissions, health and safety of workers and boardroom diversity – to give underwriters better visibility of a client’s current ESG performance. It is also adaptable to evolving sustainability priorities over time.

“The Balanced Scorecard allows us to align our sustainability objectives with the UN Sustainable Development Goals, providing a unique framework for assessing ESG performance,” he said.

Ultimately, better data quality and data standardization is a journey that the entire industry must undertake together.

“Several peers I spoke to are wrestling with the same problems Chaucer has in getting good data,” Wright reflected. There’s no one out there who’s knocking it out of the park when it comes to this. We’re only really going to be able to get better as a marketplace.”

What are your thoughts on data standardization for ESG disclosures? Please share them below.