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Captives hold promise for organizations to better manage their ESG risks

Posted On: Mar. 2, 2023 12:00 AM CST


MIAMI — Captive insurers can help organizations better manage their environmental, social and governance-related risks and achieve their ESG goals, experts say.

Captive insurers are playing a growing role in helping companies influence the social aspects of ESG, said Adriana Scherzinger, Chicago-based vice president, head of captive sales and execution, U.S. national accounts and middle market, at Zurich North America.

She was speaking last month during a panel discussion at the World Captive Forum in Miami, which is sponsored by Business Insurance.

COVID-19 created social, economic and political shocks that have led stakeholders to take a closer look at how businesses manage human capital and related risks, Ms. Scherzinger said. 

Hard market conditions have also limited capacity for certain risks, prompting a greater interest in captives, she said.

COVID-19 led to a realization that it’s difficult or impossible for most organizations to manage business risk without managing people risk, said Alan Buckley, New York-based partner at Mercer LLC, a consulting unit of Marsh & McLennan Cos. Inc.

Having a diverse set of people from different backgrounds at the table strengthened the COVID response, Mr. Buckley said. Businesses face such a wide spectrum of risks that “it’s impossible for any individual or area of an organization to provide all-encompassing advice,” he said.

Many companies used the same committee they convened to manage the COVID-19 crisis to handle the effect of the war in Ukraine, he said.

The use of captives to write employee benefits risks used to be about saving costs, said Brian Quinn, founding director of Bermuda-based Granite Management Ltd.

“Now, it’s about looking at these social factors and how can we use that tool to expand that out and give more equity, more diversity and provide the same level of benefits on a global basis,” Mr. Quinn said.

On the property/casualty side, captives are becoming more important as a business resilience tool, he said.

Captives can fund organizations’ risks up front so that their local businesses can keep running as if they have insurance, because insurers cannot provide insurance anymore, he said.

During the Ukraine war, insurers excluded coverages for the area, withdrawing confiscation endorsements in policies, said Santiago Garcia, Nashville, Tennessee-based senior director-global risk management & insurance at Brink’s Inc.

In response, Brink’s used its captive to write confiscation coverage, Mr. Garcia said. The captive also plays a critical role in the company’s ESG strategy, he said.

Brink’s core business is cash-in-transit and secure logistics, he said. “We move product from one place to the other. We’re using vehicles that produce significant amounts of CO2. These are large, heavy-armored vehicles, and that’s a significant impact for the environment,” he said.

In the past few years, the company has changed its business model, to use half-armored smaller vehicles to serve customers faster, thereby reducing emissions and maintenance costs, he said.

The captive also plays a key role in the social aspect of its business, Mr. Garcia said.

In remote areas, such as in Colombia, Brink’s may use helicopters to transport cash and insurers decline the risk, so the captive helps provide that capacity, he said.

By enabling cash to be delivered to people in areas with few banks, the captive is helping improve socioeconomic inclusion and supporting the economy, he said.