INSURANCE | Staff Reporter, Japan

Japan P&C insurers' ESG actions spell short-term pitfalls: report

Legacy practices subvert their flexibility in handling ESG initiatives.

The adoption of ESG initiatives by Japan’s major P&C insurers will impact business decisions and bring short-term challenges to the sector, according to a Moody’s Investors Service report.

The industry shows proficiency in dealing with environmental risks, as displayed in the major P&C groups’ ability to sustain profitability and high economic capitalisation amidst catastrophic damages this year.

However, their legacy practices subvert their flexibility in handling ESG practices as shown by their heavy reliance on the auto insurance segment. Separately, the fire insurance business reflects the lack of fully incorporating loss experience in pricing and altering premium rating systems and product specifications, the report said.

In addition, the broader adoption of ESG practices is a gradual process, as tangible benefits will not wholly manifest until insurers apply the new ESG underwriting to wider lines of business.

On the other hand, a more robust ESG focus will facilitate insurers’ offering of new coverage and services to address emerging social issues and boost product mix.

Moreover, whilst growth will hike their exposure to some unseasoned underwriting risks, the additional credit burden will be mitigated by the insurers' strong capitalisation and expertise of their overseas subsidiaries.

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