The three non-life insurance giants lead the way on ESG and sustainability

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While major insurers are leading the way in promoting environmental, social and corporate governance (ESG) and the Sustainable Development Goals (SDGs), various other insurers are implementing a wide range of studies and initiatives in areas such as asset management, personnel management systems, corporate governance, compliance and social contribution, in addition to improving insurance products and services, notes The Toa Reinsurance.

In the “Japan’s Insurance Market 2022” report published by Toa Re, the reinsurer’s Non-Life Planning department points out that the three largest non-life insurance groups (in alphabetical order, MS&AD Insurance Group Holdings, Sompo Holdings and Tokio Marine Holdings) have clearly defined their purpose and set up sustainability committees. They have also formally integrated the ESG framework into the decision-making process for insurance and investment operations. They regularly publish sustainability reports.

Additionally, they are addressing the increased frequency and intensity of natural disasters resulting from climate change by cooperating more closely with other industries, local governments and other organizations in disaster mitigation initiatives ranging from disaster prevention to reduction of repair costs.

The three groups are also improving insurance products that facilitate the development of renewable energy. Some companies have announced that they will not provide new insurance underwriting capacity or make investments related to coal-fired power generation.

Regulation

On a regulatory level, the Financial Services Agency (FSA) has said it is important for insurance companies to create sustainable business models and develop products that meet changing customer needs in response to changes in business environment, such as escalating disasters, advances in digitalization and post-COVID-19 strategies.

The FSA also promotes more sophisticated governance and improved management systems through dialogue with insurance companies. At the same time, the FSA will address changes in the financial environment by making steady progress with appropriate initiatives to protect policyholders and will also introduce solvency regulations based on economic value.

In addition, the FSA is reviewing economic value-based valuation and supervision methods alongside the introduction of the Insurance Capital Standard (ICS) by the International Association of Insurance Supervisors (IAIS). The economic value-based solvency assessment is at the heart of this regime and will likely come into effect in accordance with the ICS implementation schedule. It will be introduced in the fiscal year ending March 31, 2025 as a regulation in its own right after a five-year scrutiny period.

The FSA noted that introducing the economic value-based solvency ratio into the regulatory regime may lead to unintended consequences, such as excessively risk-averse behavior among insurance companies. Therefore, it investigates unintended consequences and international trends while continuing its review with an emphasis on dialogue with affected parties.

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