20 January 2023Analysis

Marsh: captives can play key role for ESG issues

Captive insurance can play a key role in helping them manage environmental, social, and governance (ESG)-related risks, according to Ellen Charnley, president of Marsh Captive Solutions.

In a recent Marsh Risk in Context podcast, hosted by Charnley, she said that captives, and in fact captive regulators, are paying attention to this topic as organisations around the world take action to improve their ESG posture.

Charnley was joined by Lorraine Stack, international consulting leader within Marsh Captive Solutions.

According to Charnley think the G part of ESG, governance, is fundamental to captives. “If you think about the very nature of a captive, it truly is all about governance,” she said. “A captive is often set up to be just that very governing body for an organisation. It houses losses that an organization has decided to move off its own balance sheet, often very much a self-insured retention or a deductible that they were already deciding to self-insure and not transfer to the marketplace.

“But with a captive organisation, they've decided to move and pre-fund those losses in a regulated entity. And have a separate board of directors, have a regulator oversee them, and to have oversight and manage in a regulated entity.

“To me that whole process breathes and speaks to governance in its true form. And so captives have been spitting out the word governance for decades. I think this is going to become a really important point, particularly to explain to stakeholders of captives as the market changes and as the market moves into perhaps a softer market from the challenging market that we're in right now.”

Stack pointed out that S in ESG covers things like labour, wages, benefits, health and safety, and other social justice issues. She said that really the most significant way that a captive can support in this category that she has been seeing is in people risk.

“So of the 1,500 captives that we manage, about 14% of them are actively writing employee benefit risk,” said Stack, adding that this number is growing annually.

Finally, looking at the E part of ESG Stack commented that: “the transition to a low carbon future is going to impact commercial insurer appetites. Most of the world's largest insurers have committed to a net zero position on investments and underwriting by 2050 with significant reductions by 2030. So captives are there to address coverage gaps, exclusions, climate-related perils, renewable energy assets, and much more.”

You can listen to the full podcast here.