Asian insurers’ development of investment-linked plans (ILPs) that adopt environmental, social, and governance (ESG) principles is creating opportunities for fund managers with established credentials in sustainable investments. Although life insurers prefer managing their assets in-house or working with affiliated fund managers, they are open to working with third-party managers for new or emerging strategies.

The development comes against the backdrop of growing ESG adoption and ILPs’ slower growth compared to that of more traditional insurance products, such as protection and participating plans. In 2021, for example, ILPs accounted for only 5.9% of total life insurance assets in the region’s four leading ILP markets of China, Korea, Taiwan, and Singapore.

Having more ESG ILPs bodes well for the insurance sector, as well as for fund managers. In Cerulli’s survey of Asia ex-Japan fund managers, 58.6% said that insurers planned to search for ESG and sustainability-themed funds to structure their ILPs. ESG-integrated funds and income, along with the recently popular technology and healthcare sectors, are product ideas that insurers seek from their managers for their ILPs.

Within the region, ESG-compliant ILPs are mainly available in Singapore and Hong Kong, which host some of the largest global and regional life insurers in Asia and are vying to become ESG investment hubs. Some of the ESG funds currently used as ILP subfunds in the region show diversity in their focus areas, including water management, food security, and energy. They concentrate largely on the environmental factor, particularly mitigating climate change and its impacts. There is very little attention given to developing products built around governance, but this is not unusual as broader issues such as climate change mitigation are easier to market as focus areas.

Moving forward, there is room for managers to offer sector funds, particularly in more established markets and where investors are more discerning in their ESG investments. There is room, too, for ESG-integrated global equity funds for insurers that are just in the process of developing ESG ILPs and for investors that are new to these types of products. However, as the ESG ILP segment and ESG investments in general remain very much in their infancy, the process of managers engaging insurers might take longer than usual.

“Life insurers will have to broaden their ILP range and underlying asset classes while providing added value to customers,” said Leena Dagade, associate director at Cerulli. “Fund managers can help, not just by offering differentiated fund ideas that can fill gaps in product suites, but also by providing insights into how insurers can expand their subfunds and advance their ILP businesses effectively.”