D&O ESG Initiative
Companies that demonstrate a willingness to build stronger frameworks to address environmental, social and governance issues may find potential rewards in enhanced liability insurance for directors and officers as part of an initiative by Marsh LLC.
Inspired by a business magazine article about companies prioritizing social concerns over profits during the COVID-19 pandemic, Marsh was spurred into action, said Maureen Gorman, New York-based managing director of the brokerage’s FINPRO practice. “It got us thinking that maybe there was a way for us to do something as an insurance broker to recognize our clients that went above and beyond,” she said.
That led Marsh to work with law firms and insurance companies to create the initiative launched last year to connect companies with outside advisors to help build or strengthen their ESG frameworks. Those companies that demonstrate a high level of commitment to managing ESG risks may be considered for preferred D&O policy terms from insurers that include American International Group Inc., Axis Capital Holdings Ltd., Berkshire Hathaway Specialty Insurance Co., Hartford Financial Services Group Inc ., Liberty Mutual Insurance Co., Sompo International, Starr Insurance Cos. and Zurich North America.
While potential policy enhancements vary, they include reduced retentions and more favorable D&O policy limits than those typically offered.
“Companies that take the initiative to work with outside counsel, whether to build or strengthen the ESG frameworks they already have in place”; make themselves a “better risk” by potentially reducing the chances of litigation, Gorman said . “If they’re making that kind of investment of time and money to do that, that’s really positive.”
Law firms including Norton Rose Fulbright LLP and Orrick, Herrington & Sutcliffe LLP are advising Marsh clients as part of the initiative, offering services such as board education and ESG disclosure reviews that can help identify and correct weaknesses in ESG frameworks.
Marsh affiliates with the law firm but does not pay for the services they provide. Insurers in the program can reward policyholders with lower costs because they become a better risk.
Helping risk managers strengthen their ESG frameworks is not a one-size-fits-all process, Gorman said.
“It’s a very tailored process,” she said. “Depending on the client, they may be anywhere along the ESG journey. Some companies may be in the earlier stages,” while others may have a more mature risk management approach already in place.