QBE is one of Australia’s largest insurance companies, and like its counterparts, it’s run with a strict risk-based approach to pricing insurance, and investing premiums.
But the difference at QBE is that they recognised the potential of impact investing to not only earn an attractive, risk adjusted return, but it was also an opportunity to align their investments with their member’s interest in contributing broader social return.
Premiums4Good is QBE’s impact model that sees a portion of their premiums dedicated to impact investments.
OnImpact spoke with Head of Impact and Responsible Investments, James Pearson, about how insurance firms can engage with impact, QBE’s pioneering forays in the early days, as well as the growth in his team, and how they’ve managed hiring in a hot market for impact professionals.
Insurance Premiums, Invested in Impact
QBE is a global multi-asset insurance company, they have more than $US28 billion invested. Of that total, about $US1.4 billion, or 5%, is currently invested in impact investments. Noting also, that the broader portfolio is governed by a responsible investment overlay.
But we’re focussed on the impact allocation, and more specifically how an insurance company, requiring a conservative investment approach, finds itself at the vanguard of this revolutionary model of social change.
According to James Pearson, the approach was born out of curiosity, of wondering if there was a better way.
“The original theory of change originated back in 2014. We wondered if an institutional investor, with serious fiduciary responsibilities, could make a market rate financial return and do good at the same time. At the start, it was that simple.” James says.
“We started with six investments back in the early days, and we’ve grown that year on year on year. We’ve been ambitious, first we set a billion dollar ambition, and then $2 billion, and as the market has grown so has our sophistication and knowledge.”
As the dollar figures have grown, and the team has become more sophisticated, the impact approach has reached across the organisation, they’re not siloed in a specific impact division.
“All of the investments that support Premiums4Good sit across the entirety of the portfolio, across various geographies and asset classes and currencies. So it’s not a separate allocation, it’s integrated throughout the broad portfolio approach.” James says.
Insurance is a Unique Business
In the world of investing, an LP or a client wants to see positive impact from their investments, but they also want a financial return.
In the world of insurance, the investment calculus is slightly different. The investing happens in the background, and aims to cover the cost of insurance claims should they come due.
This means that QBE’s Premiums4Good model sits alongside their customers’ demands for reliable insurance cover, they want to know their premiums are aligned with their values.
“Yes, the insurance company will invest that premium, but we ask ourselves, can we align it with our customers beliefs and values around sustainability, and corporate sustainability expectations? Can we link that purchase to their insurance purchase? And how can we do that through the investment portfolio?” James says.
“There’s no risk to the customer, there’s no link to the investment, return, you’re just buying insurance.”
Initially, the social impact investment model was offered on an opt-in basis, but as the firm has grown, they’ve rolled-it out to cover all of their customer’s premiums.
“As we’ve matured, over the last six or seven years, we moved to a model whereby all customers who buy insurance will have a portion of their premium allocated to impact investments. Plus, select customers do have an option to increase that allocation, to shift to an even greater share of their premium invested in impact.” James says.
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Growing an ESG Team in a Hot Jobs Market
Since QBE’s early foray into impact, the broader sector has moved along with them, and in the process competition for experienced workers with the righ combination of analytical skills has become fierce.
“Our team has gone from 2 to 5 in the past 12 to 18 months, and I think that’s reflective of the growth and commitment in this space.” James says.
“There’s clearly hot demand for ESG personnel. For me, what’s been really interesting, is the amount of applicants that have got very credible investments experience, and who want to move laterally into ESG. They want to broaden their skills into ESG, they’ve not really worked directly in it before, but they want to align their skills a little bit more with their purpose.”
There’s broad debate about what makes a good ESG skillset, whether it requires deep financial analysis skills, or whether empathy and seeing the big picture is more important, either way financial services is evolving.
“It’s refreshing to see because I think a few years ago, when you were advertising for work, it was hard to find ESG people who had that investment knowledge, and it was very hard to attract people who just wanted investments into the space. So that seems to be a shift.”
Influence Across the Market, and Across the Organisation
QBE has a big investment team, and while the impact allocation makes up only 5% its progressive approach has brought the market along with it, and the broader organisation has adapted along with it.
“We’re a global asset owner, we’re a PRI signatory, and we’ve got Net Zero 2050 commitments. We feel like we’re on top of the key issues, we get to follow a lot of the markets or the different asset classes we’re in, as well as the different conversations we’re having as a responsible investor and an impact investor.” James says.
“We work within the group head office, which means we’re able to feed a lot of this back into the broader organisation. From our sustainability strategy, to the SDGs, as well as explainin trends in the market, whether it’s the EU taxonomy or new SEC regulations.”
Insurance companies are, by necessity, down the conservative end of the investment risk spectrum, and they’re often viewed as slow to adapt to change. Impact investing, on the other hand, is at the vanguard of change, and so it’s surprising to see one of the country’s largest insurers jumping is as cornerstone investor on some early deals.
“We’ve invested in some firsts, we’ve been a cornerstone investor on some exciting deals, and that’s part of our commitment to be leaders, in the hope others will follow. In 2018 we seeded the first ever social impact bond fund that was done in the US. Back in 2021 we were the largest investors in Save the Children Australia’s first ever impact fund. And then in 2020, we worked with BNP, CFEC and Aware Super to market the first ever green bond that was linked to a forward looking climate index.” James says.
“But I think the key benefits are showing you can generate a return, and others that are following suit, seeing that there’s impact investment opportunities out there that are practical, and investable. And that really helps lead the way.”