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Captives can help finance ESG efforts: Panelists


Captive insurers have a potential role to play in helping their organizations support and finance aspects of environmental, social and governance projects that bring long-term value, experts said Friday.

As businesses move to build a more sustainable carbon footprint, the ability to use surpluses generated from their captives to fund environmental projects could build value,  according to participants in an online session at the Risk & Insurance Management Society Inc.’s 2021 Enterprise Risk Management Conference.

Karen Hsi, program manager of captive insurance programs for the University of California Office of the President, said the savings it generates from self-insuring risk via captives could be used to implement future projects that reduce carbon footprints such as adding solar panels on campuses.

One feature of captive insurers is the ability to invest any money held in surplus and reserves and return it to the parent organization to finance operations.

“There is a longer-term value to using ESG as a broader risk management tool, not just the investment piece,” Ms. Hsi said.

Anne Marie Towle, Indianapolis-based global captive solutions leader for Hylant Inc., said captive surpluses can be used in a variety of ways when it comes to risk management and supporting overall ESG initiatives.

For example, during the pandemic many companies have leveraged their captive surpluses to help purchase personal protective equipment for their employees or to support COVID-19 testing, Ms. Towle said.

“It’s not just reacting and paying claims, it’s preventing any type of claim from happening, whether it’s health insurance, student housing, medical. It runs the gamut,” she said.

Some companies have sponsored a tutor online or provided mental health resources, said Tanja Maffei Chan, senior vice president, global risk management leader, at Hylant.

“All of these things have come out of the pandemic, and some of it has been made possible funded by captive surplus,”  Ms. Chan said. Waste management and recycling is another ESG area of focus that could be supported by an organization’s captive, she said.

Being ESG-aware and having strong governance in place as part of its overall risk management also helps when it comes to an organization’s insurance and reinsurance renewals, panelists said.

“We all know we are in a hard market. The pandemic has only made it harder,” Ms. Hsi said. While a captive can help an organization leverage its renewal prices and premiums, “ESG can help that further in the sense of your captive being at the forefront of best practices, being environmentally aware, being socially aware and having the governance,” she said.

Captives were born from innovation and can help organizations think about risks differently and create value, Ms. Towle said.