Chubb is an underwriting company and we strive to emphasize quality of underwriting rather than volume of business or market share. Our underwriting strategy is to manage risk by employing consistent, disciplined pricing and risk selection. This, coupled with writing a number of less cyclical product lines, has helped us develop the flexibility and stability of our business, and has allowed us to maintain a profitable book of business throughout market cycles. Underwriting discipline is at the heart of our operating philosophy.
Chubb uses internal and external data together with sophisticated analytical, catastrophe loss and risk modeling techniques to ensure an appropriate understanding of risk, including diversification and correlation effects, across different product lines and territories. We recognize that climate changes and weather patterns are integral to our underwriting process and we continually adjust our process to address these changes. This is intended to help to ensure that losses are contained within our risk tolerance and appetite for individual product lines, businesses and Chubb as a whole.
Evan Greenberg, Chairman and CEO of Chubb, commented further in his 2018 letter to shareholders on how climate change is integrated into underwriting: “As an underwriting company, our job is to understand, structure and assume climate change-related risk for a fair price, and only do so to the extent of our balance sheet wherewithal and our ability to spread the risk to third-party capital. Our approach to underwriting is fact-based and relies on both our own experience and scientific expertise, and that of the expert network we engage outside our organization. Climate risk is complex and requires a deep and evolving understanding of the physical processes causing weather extremes. These tools are improving and are providing better insights to aid in how we think about these perils, but much remains unknown. For example, what were traditionally non-modeled risks can now be better analyzed, but flood models, for instance, are more advanced than those for wildfire, which remain relatively crude. We also recognize that no matter how good, there is still much basis risk in our conclusions. However, keep in mind that natural catastrophes are a short-tail risk, so losses are understood relatively quickly, and we can in most cases react to what we observe.”
As part of its underwriting process, Chubb regularly applies exclusions, which depend on the specific conditions and circumstances of the risk being evaluated. Those exclusions may reflect ESG-related considerations. For example, Chubb is among the world’s largest global underwriters of environmental liabilities and pollution risks. However, Chubb’s underwriting in this business restricts certain industries, including mining and reclamation operations, oil refining, pipeline and distribution operations and chemical manufacturing and distribution. For more information, visit Chubb’s Environmental Insurance and Services section.
Chubb is also a global leader in financial lines insurance, which includes coverages for directors and officers. Chubb’s risk selection, along with the pricing and terms and conditions provided to policyholders, often incorporates ESG-related considerations, such as an assessment of the culture of the company, its track record of regulatory and legal compliance, and the policies and procedures in place to manage potential risks.
In addition, Chubb offers specific coverages that address sensitive sectors in the company’s insurance underwriting business. Some of these are bespoke coverage, which we do not disclose publicly. Some are for sensitive sectors that we do disclose on the company’s website, such as underground storage tanks, which are environmentally sensitive due to the risk of leakage and ground water contamination. Chubb’s 2019 Environmental Report provides an overview of the company’s environmental products and services.
Chubb also sees opportunity in providing innovative insurance products and risk engineering solutions that are ESG related. For example, Chubb’s Clean Tech business provides bespoke insurance solutions to companies that are creating new technology and driving innovation. This global business has dedicated underwriters, risk engineers and claims examiners who specialize in serving clean technology companies. Examples of other industries with unique risk management needs addressed with innovative Chubb products include transportation, long term care facilities and premises pollution liabilities for agricultural businesses. In addition to its product offerings, the company provides a variety of tools, resources and programming to help agents and brokers succeed, including training on environmental risk engineering and loss control techniques.
The centrality of underwriting to Chubb’s culture is also evident in the work of the company’s Executive Committee, which includes the Chairman and CEO and Chubb’s most senior executive leaders. The Executive Committee has responsibility for ensuring that Chubb’s ESG and citizenship activities are consistent with the company’s culture, values and corporate mission. Chubb’s General Counsel is responsible for monitoring ongoing ESG/citizenship activities, reporting periodically to the Nominating and Governance Committee of the Board of Directors on those activities and bringing new ESG/citizenship issues as they arise to the Committee’s attention for review and decision, which may involve advocacy or specific corporate action. In addition, Chubb’s Chief Culture Officer supports our General Counsel by providing advice in coordinating our communications to ensure cohesive messaging.
Chubb is also distinguished by its industry-leading risk engineering services, which includes more than 400 risk engineers worldwide who help companies anticipate and minimize costly exposures, including those related to ESG. For example, risk engineers bring deep technical knowledge and talent to help companies reduce their exposure to extreme weather events, which are becoming more frequent and severe due to climate change, as well as actions that will reduce the risk of accidents and injuries at construction sites, in factories, etc.