Captive opportunity to incubate carbon credit risk: Airmic panel

By Rebecca Delaney

March 5 - (The Insurer) - Captive insurers can help support the sustainability agenda of their respective parent companies, panellists said at the Airmic Captives Forum in London on Wednesday.

Franck Baron, chief risk officer at health and security services firm International SOS, told attendees that the captive owner is currently in the process of developing a position paper with the United Nations to link the usage of a captive to supporting the sustainability agenda of corporations and international organisations.

"In today's world where ESG and sustainability is a key item on the agenda, despite what political leadership of the U.S. is telling us, the captive can clearly be a support to the sustainability programme and strategy of your parent company," said Baron.

"For instance, our captive has supported an ex gratia mechanism to provide support to employees under the S of ESG. We are financing part of our decarbonisation efforts in my company through the captive."

He added that International SOS's captive now factors in the sustainability policies of fronting carriers and insurers when selecting which parties to do business with.

Also on the panel, Dan Sammons, captives manager at HDI Global UK & Ireland, outlined how captives have a business-led motivation to incubate risk.

This can take a range of forms (such as professional indemnity or non-damage business interruption), with increasing conversations around climate- and sustainability-related risks.

“Carbon credits as a corporate strategy for sustainability and net-zero is emerging," said Sammons.

"Some opportunities exist where the increased cost of working needs to include purchase of carbon credits, where replacement manufacturing cycle using different suppliers results in an increase in carbon emissions, the price and availability of these carbon credits fluctuate and it's hard for insurance companies to price that risk.”

He added that a captive is inherently agile (compared to a balance sheet insurer) in its ability to respond to changing market conditions or demand for a new product line, such as carbon credit insurance.

“Insurers find it hard to be flexible or agile in the underwriting of new businesses and/or new products. Insurers need data in order to underwrite risk," said Sammons.

"With a new type of risk, there's little or no data, and the investment in time and money required to create a product for the intent of underwriting portfolio of similar risks can be significant, especially in terms of time."

He continued: "In the case of captives, highly motivated by business need with an intrinsic knowledge of their own risk for their specific circumstances, naturally makes it easier to respond. Partnering with a fronting carrier and closely aligned innovative alternative risk team automatically makes the captive far more agile."