ESG can help with growing climate risks: VCIA panel
Climate and environmental, social and governance (ESG)-related risks are now major threats to financing risk globally. In 2023 alone, there were over $123 billion in natural catastrophe losses – but captives can help to deal with the impact of this.
In a panel discussion entitled ‘Climate and ESG: Risks Reshaping the Insurance Landscape’, the 2024 VCIA conference heard that commercial insurance companies have taken notice of the increase in natural catastrophes and are adjusting insurance pricing to compensate for the risk.
As a result of these pricing increases many businesses are utilising their captives to assume a portion of the risk financing burden.
Andrew Baillie, vice president & director at AES Global Insurance Company, Daniel Raizman, managing director, Climate Risk Advisory Aon, Dennis Silvia, executive vice president at Davies Captive Management and Dan Youngs, president at Sustainable Assurance Company all spoke at the panel discussion.
The panel noted that not only are natural catastrophes are on the rise, but that of the 2023 natural disaster total of $280 billion in economic damages, only 31% of that was insured. Notable loss activity through first half of 2024 has been above the recent average.
Looking at the US, there was a big uptick in US tornado losses this year. More people moving across the country and in fact 68% of global population now lives in urban centres. With more people living in urban developments, there has been more reported damage from area-specific events like hailstorms.
The panel pointed out that captives are playing a critical role in closing the protection gap in many places. Captives can provide the innovation that many are asking for in terms of policies and allow a pivot towards new technologies.
A number key trends to watch on climate & sustainability were also identified, which include: extreme weather, health, green energy transition, disclosure & regulations, carbon offsets & nature, casualty liability & climate litigation and food safety & supply chain.
Captive owners on the panel provided perspectives on changing risk management over the past few decades. Environmental changes & challenges have resulted in rethinking risk management and the best way. ESG policies have had to change – realistic goals are now increasingly being set, with better risk management and changes to risk retention.
The panel stressed that risk engineering can also be a vital part of risk management – if you know how something like electrical equipment can fail then you can insure it correctly.
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