Captives fill gap in insurance market for climate cover, ESG exposures

Captive insurers have a growing role to play in financing climate-related risks and environmental, social and governance initiatives, experts say.

There’s been an increase in activity in the area, whether it’s a captive taking a piece of an environmental policy, such as a layer or deductible, or companies in a particular industry forming captives, said Ellen Charnley, president of Marsh Captive Solutions in Las Vegas.

Companies are also exploring how a captive could help them better retain risk and provide an alternative to the commercial market, Ms. Charnley said. “It’s the start of a trend that we’re likely to see more of,” she said.

Commercial marketplace conditions for climate risk and property specifically have been challenging, said Anne Marie Towle, Carmel, Indiana-based global captive solutions leader at Hylant Group Inc.

Captive owners with a mature captive that has a surplus are using them to access parametric coverages, for example, Ms. Towle said. New captives are also being formed that have a key interest in climate and are starting to finance some of this risk, she said. 

Captives could also play a role in supporting low-carbon technologies, such as self-driving or electric vehicles, that the commercial market has limited experience with, Ms. Towle said. 

Even as many insurers walk away from coal or reduce capacity for polluting industries, plenty of providers want to support companies and accelerate their transition away from carbon-intensive industries, said Liz Henderson, co-head of Americas catastrophe risk analytics for Aon PLC in Chicago.

Key performance indicator-based insurance and parametric covers are examples of recent risk transfer innovation, Ms. Henderson said. “All of these things are on the table, and we are exploring them with our clients regularly,” she said.