15 minute read 02 May 2023

It’s time for the insurance industry to strengthen its climate risk governance

Deloitte’s survey of insurance executives reveals where the industry is focused today, and why governance is the key to leading the way forward.

David Sherwood

David Sherwood

United States

Namrata Sharma

Namrata Sharma


Key takeaways

  • As oversight bodies around the world zero in on environmental, social, and governance (ESG) issues, particularly in the climate space, insurers could face significant financial and reputational ramifications stemming from their unique position in making climate–related investment and underwriting decisions.
  • While considerable time and effort is being invested in reporting activities, more insurers should be integrating decarbonization strategies throughout their value chain, while also thinking about competitive differentiation through innovations in climate coverage and risk management services.
  • To achieve this, insurers should focus on upgrading their climate risk governance program, which is rooted in an engaged board of directors, cross-functional collaboration, and a streamlined approach to data management.

Why is there a pressing need for insurers to work on climate risk governance?

Climate change may be generating controversy and headlines across the United States and around the world, but this risk is nothing new for insurance companies. As underwriters of people and properties increasingly exposed to windstorms, wildfires, floods, and droughts and as major institutional investors in carbon-generating and more sustainable industries, insurers have been on the front lines in coping with the impact of climate risk and in mitigating such exposures.1

What’s changed for insurers, however, is the increased scrutiny from regulators and external stakeholders on how carriers calculate and manage climate risks (see sidebar, “Regulators and governing bodies are zeroing in on climate risk”). This attention is likely designed to both reassure overseers about an insurer’s ability to financially withstand the consequences of worsening climate exposures as well as challenge insurers to detail how their products, services, investment strategies, and operations can help address the climate crisis. Some litigators are also keeping close tabs on what companies are doing, prepared to take legal action against perceived “greenwashing” in insurance company disclosures that cannot be backed up with demonstrable actions and quantifiable progress.2

With insurers facing greater financial and reputational risks from their climate–related investment and underwriting decisions, more carriers should consider focusing on bolstering their governance infrastructure, processes, and integration across the company. Doing so could not only strengthen their financial well-being but also accelerate decarbonization within a company’s operations and throughout the broader business ecosystem.

To help insurers assess the maturity of their climate risk governance systems, upgrade their strategies, and enhance regulatory reporting capabilities, the Deloitte Center for Financial Services fielded a survey of 100 C-Suite executives and ESG leaders of US insurance companies. The respondent pool spanned a diverse mix of life and annuity carriers (45%), property and casualty companies (37%), and reinsurers (18%). There was representation from companies with revenues greater than US$10 billion (27%), those between US$1 billion and US$10 billion (38%), and those with less than US$1 billion (35%). In terms of ownership status, 65% were private companies versus 35% that are publicly listed. Additionally, we conducted interviews with insurance industry ESG leaders to understand their governance frameworks as well as strategies to reconstitute their structure going forward.

The results show how responding carriers are currently managing climate risk governance requirements, while revealing several challenges that may be inhibiting greater climate risk integration. Our research also provides insights into how insurers might go beyond pure compliance considerations to help make climate risk governance a competitive differentiator across the value chain—both internally (from product design to distribution, underwriting to claims, investment management to sustainability initiatives) and externally (among policyholders, distributors, and other supporting third parties).

Regulators and governing bodies are zeroing in on climate risk

A variety of oversight bodies are moving forward—individually and in tandem—to help spur more insurers to quantify and mitigate climate risk.

  • The work of the Task Force on Climate-Related Financial Disclosures (TCFD) has gained significant global momentum over the past year. Multiple jurisdictions have proposed or finalized laws and regulations to require disclosures aligned with TCFD recommendations—some of which will come into effect as early as 2023.3
  • The National Association of Insurance Commissioners (NAIC) updated its climate risk disclosure survey to align with the TCFD framework. This calls on carriers to think more proactively about climate change in multiple facets of their business, as well as to confront how they address implications.4
  • The US Securities and Exchange Commission’s climate disclosure requirements are being promulgated to better understand what insurers are doing to manage growing climate risks and to further the transition to a low-carbon economy.5
  • Collaborative efforts by groups such as the Net-Zero Insurance Alliance6 and Climate Action 100+7 have shown that the viability of initiatives seeking pronounced climate impacts typically depends on insurer business decisions. Carriers are now making their underwriting decisions and divestment policies more nuanced and integrating them into decarbonization strategies.
  • The United Nations established the Principles for Responsible Investment and the Principles for Sustainable Insurance to help guide the industry’s decision-making practices.8

Survey finds many insurers have climate action goals, but limited resources may create competing priorities

Deloitte’s research shows that many insurers have made considerable headway toward setting decarbonization goals at an organizational level, with 75% of those surveyed saying that they have set net-zero targets and are on track to meet their deadlines. However, the growth in regulations and increased expectations from other stakeholders—including investors, rating agencies, and ESG assessment firms—have prompted not only a reassessment of insurer data gathering and reporting capabilities at many carriers, but also a reconsideration of the role of compliance to meet broader business needs.

When asked to divide efforts among governance tasks (figure 1), the most time and effort (60% to 80%) was apportioned to compliance areas—meeting basic regulatory requirements, adhering to requests from various other stakeholders, checking their plans and progress, as well as collecting data to issue reports. Because of limited resources, many may be doing this at the expense of bigger-picture goals—such as providing guidance or actively facilitating significant changes in how insurers operate or formulate strategic transformation plans in response to climate risks.

“We are just trying to be compliant, to make sure that our environmental data is as complete, accurate, and reproductible as possible. While we have been reporting data for a long time, we want to fortify the processes and testing around it, and that’s a time investment.” 

— Insurance company head of sustainability

The competition for limited ESG resources is expected to continue—especially for specialized talent—to help meet increasing calls for more data and more proactive, concrete action on climate risk. Bolstering branding and recruitment efforts for the industry’s ESG work profile in general and for the often highly technical climate risk specialists could help attract and retain the necessary talent to meet these rising oversight expectations.

As regulators and other stakeholders seek more information, proof of action, and quantifiable results, the scope of data collection, measurement, and reporting work is expected to increase significantly. To keep up with the demand for greater transparency, most insurers will likely have to continue upgrading their governance capabilities—whether out of legal obligation or to protect their brand reputation.

To help gain broad support for enhanced reporting efforts, carriers should also focus on building a governance program that spreads awareness, while also educating and updating the board, management team, and rank and file, so the whole organization can work toward the same goals and be driven by the same purpose.

External ESG ratings are helping to shape governance decisions

Respondents to Deloitte’s survey attribute high importance to the role that ESG ratings are playing in constituting their governance framework and influencing related business strategies and operations. The survey found that refining underwriting criteria is a top focus area for insurers seeking to improve their ESG rating, followed closely by modifying governance strategy (figure 2).

Meanwhile, with the introduction of more scorecards that measure emissions, recycling initiatives, water usage, disposal management, and other elements tracking sustainability progress, our research found that the current lack of uniform metrics and reporting standards can be challenging for insurers. This is often the case where significant variations in a company’s profile might make exact measurement and apples-to-apples comparisons difficult, depending on a particular insurer’s lines of business, geographic regions, and applicable regulatory jurisdictions.

At the same time, while insurers have been historically churning out data and converting raw information into actionable insights for underwriting, pricing, and claims management, data availability and quality concerns could also make reporting a more difficult task when it comes to quantifying climate risk in the wake of changing categorization and subsequent measurements of Scope 1, 2, and 3 emissions.

Gathering, vetting, and making sense of such data from multiple areas will likely prompt the need for an accessible centralized data hub, as well as upgraded processes and controls to collect, assess, and report data on a regular basis. From a talent perspective, cross-functional relationship building, cooperation, and individual upskilling may also be needed to help maximize the use of all the data collected and to convert it into actionable insights and proactive risk management strategies.

Net-zero integration has started, but the value chain likely needs more focus

The process of integrating net-zero goals has already started, according to our survey respondents, with many saying they are in the advanced stages in strategic areas such as underwriting, investment, and risk management. Operationally, however, many respondents indicated their insurers are not yet focusing on integrating climate risk into support functions such as claims management, customer screening, sales and marketing, metric setting, and compensation (figure 3).

These priorities should shift as insurers look to bolster their climate risk governance programs across their internal value chain. Property and casualty (P&C) carriers, for example, should start paying closer attention to climate risk considerations in claims management. Given the time and expense required to inspect, repair, and/or replace damaged properties, carriers could employ technology to help make changes in claims handling and resolution processes. Rather than sending adjusters to assess losses, insurers could deploy remote technologies such as drones or satellite imagery to identify property damage.

Insurers also have an opportunity to incentivize the use of more climate-resilient materials among policyholders. Liberty Mutual, for instance, advises policyholders who have suffered structural losses to their properties to “build back better” by doing such things as installing more energy-efficient solar panels.9 Such environmentally sensitive steps not only may advance the company’s net-zero goals, but could also help improve its competitive position, with the potential to boost profitability.

Among life insurers (figure 4), our research shows that respondents are making strides in core areas impacted by climate risk, such as managing their investment portfolio and implementing enterprise risk management (ERM). Although this segment may not be as focused as P&C carriers on integrating climate risk into underwriting decisions, its impact on mortality rates could be an increasingly important factor going forward in that function.

Life insurers could also bolster executive compensation and incentives to drive corporate climate risk–reduction efforts internally. Prudential Financial is one company where compensation and incentives have been linked to representation goals.10 Additionally, for net-zero and broader ESG integration to be more effective in influencing decision-making, these concepts could be embedded in target setting and metric design.

As the scope of data collection and measurement expands, insurer sustainability and compliance executives should consider working closely together alongside operational and line of business leaders to help establish a unified, proactive approach to overcoming these and many other obstacles to effective climate risk disclosures across the value chain. Periodic discussions on regulatory requirements, compliance challenges, and industry leading practices could help insurers collaborate more effectively to follow their governance road map. Otherwise, gaps are likely to widen, as our survey found several departments lagging behind in implementing effective reporting practices and contributing to sustainability initiatives.

Improved governance could help accelerate sustainability efforts while enhancing an insurer’s competitive position

Despite the opportunities for progress, Deloitte’s research surfaced a host of challenges that insurance executives may face in expanding and improving their carrier’s climate risk governance practices. A variety of factors have combined to potentially make governance a herculean task (figure 5).

Consider how lack of transparency by the industry at large or an individual insurer might adversely impact trust and reputation. Or how insurers that raise rates in areas exposed to rising climate risks might be challenged by policyholders and regulators. Meanwhile, there have already been numerous examples of individual insurers and the industry as a whole being called out by stakeholders if they don’t appear to be transitioning quickly or effectively enough to climate–sensitive business and investment practices.11

Given the challenges cited in figure 5, how might insurers reconstitute their climate risk compliance framework to facilitate more effective controls, improve stakeholder management, and achieve greater sustainability across functions and lines of business?

Deloitte’s discussions with insurance company leaders and our survey results point toward the consideration of restructuring, putting in place six pillars that together could support a more holistic and proactive climate risk governance framework (figure 6).

Greater board involvement: A majority of survey respondents cited the vital role their board plays in keeping up with climate-related issues, often actively guiding their management teams toward a more sustainable future. However, as the numbers also showed (figure 7), a significant percentage of board members among responding insurers either lack a basic awareness or basic understanding of these issues and/or do not provide much direction to management.

To fortify board engagement, regular briefings should be delivered by those among the insurer’s management and operational team most conversant with climate risk and associated regulatory concerns—such as the chief sustainability officer, chief risk officer, and chief compliance officer—to help keep the board informed and involved. These briefings could provide a big-picture view of what climate risks should be accounted for, why the company should act sooner rather than later, and how they should proceed. Sponsorship by a more-informed board can help ensure that controls are in place to collect, authenticate, and store confidential information, as well as magnify the importance and urgency of sustainability programs across the insurer’s operations.

Create cross-functional teams: Many insurers may still have a long way to go before climate risk and broader ESG governance is fully embedded into functions, processes, and individual job descriptions. Setting up cross-business or cross-functional working groups and appointing climate risk champions in each can help promote a more unified, collaborative approach.

Periodic discussions on regulatory requirements, compliance challenges, and industry-leading practices could help insurers improve internal collaboration. Sharing updates and discussing challenges can keep leaders aligned across operating units, while driving accountability and spurring more proactivity across the company.

Chubb, for example, uses a multidisciplinary global enterprise risk management framework to address climate risk and ESG issues. The governance framework is embraced by colleagues at all levels of the company, starting with the chief executive officer and other senior executives, as well as the board, down to leaders of each business unit and function.12

Integrate climate risk protocols across operations: Prudent management of climate risk resources, infrastructure, and personnel could have a positive effect on enhancing both the environment and a carrier’s bottom line. Conserving energy, limiting paper usage, setting up recycling programs, and allowing hybrid work schedules are just a few ways insurers can set environmentally conscious norms. Allstate, as part of its workspace strategy in the midst of the pandemic, decided to sell its home campus and allow the majority of its employees to work remotely—in part to lower its carbon footprint.13

When it comes to the people part of the governance equation, as insurers strategize to integrate net-zero goals in their various operational and business units, creating an infrastructure that provides basic education and training for everyone from board members and management to front-line employees—along with incentives to be both compliant and creative when it comes to formulating and implementing sustainability solutions—can enhance both governance effectiveness and bottom-line results.

“Some education is always required to make sure that the right people really understand what the greenhouse gas protocol says, onboarding people to why this is important, why we need this data? How does this touch our disclosure committee? What are different SMEs signing on to and how are we capturing that? Some of it is internal education. Some of it is legal, some of it is tech.”

— Insurance company head of sustainability

Assist in the transition: Establishing adequate measurement and reporting Scope 1 and 2 emissions (direct and indirect emissions from an insurer’s own operations) is important to maintaining compliance, but carriers can also play an important role in helping advance disclosure across their external insurance value chain—from distribution to third-party suppliers and alliance partners—as well as policyholders—all of which may feed into an insurer’s Scope 3 emissions. Insurers can help by educating and guiding value-chain partners to be compliant with climate risk disclosure requirements as well as by assisting stakeholders in managing transition risk.

One example is reducing premium costs for policyholders focused on clean-energy and decarbonization efforts. Chubb is tightening its requirements on insurance policies for oil and gas producers to reduce emissions of the greenhouse gas methane. As part of its underwriting process, Chubb looks to verify whether policyholders are taking required steps toward decarbonization.14 AXA has also developed sector-specific guidelines for direct investment and underwriting to ensure consistency with its climate risk strategy and sustainability goals. The company further plans to increase premiums from green insurance products15 to Euro 1.3 billion by 2023.16

Given the industry’s focus on risk management and loss control to protect lives and property, insurers invest heavily in risk analysis and loss control resources, and most already have the capabilities to prudently assess and price climate-related exposures,17 whether physical, transitional, or reputational. As a result, insurers may be uniquely positioned to serve as sustainability brand ambassadors, and many are even leading from the front. The Hartford, for one, embedded climate-sensitive principles in its underwriting and enterprise risk management practices, increased the share of personal lines products that reward energy-efficient behavior, designed commercial products specifically for the sustainable energy industry, and offered coverage for energy-efficient construction and development projects.18

The industry should also continue its external risk mitigation efforts by helping bolster building codes, seeking to enhance zoning restrictions in areas exposed to high climate risk, and initiating other proactive loss control efforts.

Set controls and validate metrics: Measuring climate risk may come naturally to the industry, which for decades has focused on understanding weather, climate, demographics, and other mitigating factors based on real-time and historical data, as well as increasingly advanced predictive modeling capabilities.

With climate risk and broader ESG data being treated more like financial data in terms of compliance, carriers should ensure adequate controls before the information makes its way into filings and public reports.

Insurers should therefore be periodically reassessing climate metrics to confirm their validity and keep up with changes in compliance requirements. They should also work with industry groups to convince stakeholders watching over them to establish more standardized monitoring and rating systems, which could help enable clearer comparisons and save valuable resources by eliminating unproductive, repetitive reporting.

Leverage technology: Insurers should consider deploying more enabling technology, including centralized digital platforms, that can act as a repository for managing climate risk-related data and tasks, automating basic data gathering, and providing consistent historical data to help monitor and streamline reporting. Technology can further serve as a catalyst to spark innovative problem-solving, such as by using advanced analytics, artificial intelligence, and machine learning to help identify, quantify, and limit climate risk in current portfolios, as well as to help prospectively avoid such exposures in future policy underwriting and investments.

“Certain investments need to be made now to unlock the ability to spend time in advising, facilitating significant changes in business operations and strategic plans. Such investments include adopting automation to lower the time taken on data gathering and reporting.”

— Insurance company chief sustainability officer

Establishing an overarching climate risk governance strategy

Climate change can affect each insurer differently; yet fundamentally many insurers are being asked to work toward the same underlying goal of making their climate risk governance structure more robust and the outcome more transparent.

To graduate from basic risk-transfer transactions for climate risk into becoming enterprise risk management partners bolstering sustainability for the policyholders and wider society they serve, carriers likely should work to ensure they have a solid ERM program in place addressing their own climate risks. In addition, while the “E” in ESG faces its own specific set of regulations, an insurer’s approach to governance should be consistent across ESG. Indeed, how insurers handle climate risk should help guide other aspects of ESG governance as part of an overall structure to facilitate clear and comprehensive reporting, while enabling insurers to differentiate as a climate risk mitigation and overall ESG leader.

Deloitte’s survey and insurer interviews indicated that many carriers are focusing on the narrow goal of compliance tasks when they could also be differentiating by helping draw more business-related insights from their data-collection and governance efforts—such as in product design, underwriting, and investment strategy. An insurer’s governance pillars can help frame an overarching business philosophy, providing specific pathways and direction for all stakeholders and divisions of the insurance value chain, both internal and external (figure 8).

While this research paper concentrates on climate risk governance, there are lessons that can help the insurance industry navigate broader ESG issues as well. Survey respondents indicated progress in many areas, but not in all of them (figure 9).

While the rule proposed by the Securities Exchange Commission (SEC) puts greater focus on the “E” in ESG for the time being, insurers should think about defining the “S” (social goals) as well, such as how they might improve economic equity by finding ways to increase coverage availability and affordability in underserved areas.

The focus should not just be on transparency and reach in the market but also on how effectively an insurer is enhancing internal diversity and inclusion in management, executive leadership, and the board. The World Economic Forum suggests reporting the percentage of employees per category by age group, ethnicity, gender, and other diversity indicators and talent benchmarks.19 The SEC also has established several ESG “human capital” disclosure requirements, with more likely to come.20

As the world transitions to a low-carbon economy, what will likely differentiate insurers is whether and how well they go beyond sustainability reporting and basic compliance standards. A well-integrated governance approach linked to quantifiable outcomes should underpin a more proactive business plan seeking to unlock wider-ranging possibilities in climate risk management. ESG governance should naturally be embedded into overall corporate governance and be flexible enough to meet a wide variety of evolving stakeholder expectations.

Insurers that develop a strong governance culture could gain benefits that go well beyond the bottom line—enhancing the company’s value for its employees, policyholders, suppliers, investors, and society at large. Having vast experience assessing and managing risk, insurers should be in a prime position to lead from the front, positioning themselves as ambassadors for more effective sustainability risk management and governance.

  1. New York State Department of Financial Services, “Climate change and financial risks,” September 22, 2020.View in Article
  2. Tim Quinson, “A class-action wave is coming for ESG claims,” Insurance Journal, January 25, 2023.

    View in Article
  3. Task Force on Climate-Related Financial Disclosures website, accessed April 2023.View in Article
  4. National Association of Insurance Commissioners, “U.S. insurance commissioners endorse internationally recognized climate risk disclosure standard for insurance companies,” April 8, 2022.

    View in Article
  5. U.S. Securities and Exchange Commission (SEC), “Climate and ESG risks and opportunities,” accessed April 21, 2023.View in Article
  6. United Nations Environment Programme Finance Initiative, “World-leading insurers and United Nations launch pioneering target-setting protocol to accelerate transition to net-zero economy,” January 17, 2023.View in Article
  7. Climate Action 100+, “Climate Action 100+ releases the latest evolution of the net zero company benchmark,” March 30, 2023.

    View in Article
  8. United Nations Environment Programme Finance Initiative, “Principles for sustainable insurance,” accessed April 21, 2023.View in Article
  9. Liberty Mutual Insurance, Sustainability resources, accessed April 21, 2023.View in Article
  10. Prudential, “Prudential Financial 2020 ESG report details company transformation,” press release, June 25, 2021.

    View in Article
  11. Deloitte, Identifying and mitigating greenwashing risk: Considerations for insurance firms, February 16, 2022.

    View in Article
  12. Chubb, Chubb 2022 climate–related financial disclosure, November, 2022.

    View in Article
  13. Lucas Mearian, “Allstate goes all-in on remote work while building company culture,” Computerworld, June 2, 2022.

    View in Article
  14. Factiva, “Chubb announces new Climate and Conservation-Focused Underwriting Standards for oil and gas extraction,” March 26, 2023.View in Article
  15. Green insurance: Meaning, Products, Benefits, Yo Nature, March 2021.

    View in Article
  16. AXA, Climate and biodiversity report, June 2022.

    View in Article
  17. New York State Department of Financial Services, “Climate change and financial risks," accessed April 21, 2023.

    View in Article
  18. The Hartford, 2021 sustainability highlight report, July 2021.View in Article
  19. World Economic Forum, “Human capital is the key to a successful ESG strategy,” September 2, 2021.View in Article
  20. Amit Batish, “Early CEO compensation and PvP disclosure trends from the 2023 proxy season,” Harvard Law School Forum on Corporate Governance, April 20, 2023.
    View in Article

Co-author Namrata Sharma is the insurance research manager with the Deloitte Center for Financial Services.

The authors would like to thank Sam Friedman, insurance research leader, and Dishank Jain, insurance research assistant manager, Deloitte Center for Financial Services, for their contributions to this article.

The authors would also like thank Donna Szatkowski-Zych and Matt Martinez, partners in Deloitte’s Audit and Assurance practice, for their guidance.

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David Sherwood

David Sherwood

Managing Director | Deloitte & Touche LLP


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