Double Materiality Assessment
for Insurance

Double materiality assessment for Insurance

Insurance companies face a double materiality assessment that mirrors banking in its complexity but differs in its mechanics. Where banks transmit sustainability impacts through lending, insurers do so through underwriting (enabling insured activities) and investing (allocating premium float). A mid-sized European insurer with EUR 2B in gross written premiums and a EUR 5B investment portfolio must assess E1 across four pathways: operational emissions (offices, travel), insured emissions (the carbon-intensive activities the insurer underwrites), financed emissions (the investment portfolio), and reinsurance ceded emissions where the insurer retrocedes risk to counterparties. ESRS 1.30 requires all three to be in scope because underwriting and investment activities constitute the insurer's value chain.

E1 Climate change is material on both dimensions for nearly every insurer. Impact materiality arises from insured emissions and investment portfolio emissions. Financial materiality is acute: physical climate risk directly drives claims costs (the European Insurance and Occupational Pensions Authority (EIOPA) reported that weather-related insured losses in Europe reached EUR 13.4B in 2023). Transition risk affects both the underwriting book (declining demand for fossil fuel coverage) and the investment portfolio (stranded asset exposure). S1 Own workforce covers the standard employment topics but also includes the pressure on claims handling staff, commission structures for sales teams, and the use of gig-economy loss adjusters. S4 Consumers and end-users is material for retail insurers through fair pricing (avoiding discriminatory algorithms in premium setting), claims handling conduct, product suitability, and coverage transparency. The EU's Insurance Distribution Directive (IDD) already regulates much of this, but ESRS S4 disclosure goes further by requiring impact assessment on customers. G1 Business conduct addresses market conduct, broker commission transparency, anti-fraud measures, and sanctions compliance in cross-border reinsurance.

Assurance providers flag two consistent weaknesses in insurance double materiality assessments. First, insurers exclude insured emissions from the E1 assessment, treating underwriting as a passive activity rather than an enabling one. EFRAG's draft sector-specific guidance for financial institutions makes clear that insured emissions are in scope. Second, insurers assess S4 only through a regulatory compliance lens ("we comply with IDD") rather than conducting the impact materiality assessment required by ESRS 1.43-44, which demands evaluation of actual and potential negative impacts on consumers.

Insurers should structure the assessment around four areas: underwriting (by line of business and insured sector), investments (by asset class and sector), operations, and reinsurance arrangements. For underwriting, categorise policies by the insured entity's sector and assess which ESRS topics apply to that sector. Property insurance in flood-prone areas creates E1 physical risk exposure. Liability insurance for chemical manufacturers creates E2 Pollution exposure. For investments, use the same sector-based approach as banks. For operations, assess S1 and G1 based on internal HR data and compliance records. The Principles for Sustainable Insurance (PSI) framework provides useful sector-specific indicators for the underwriting assessment.