As companies across Europe continue to strive towards Environmental, Sustainability & Governance (ESG) and Sustainability goals, a captive can be a useful tool to link those targets with an insurance programme. And by rewarding good performance with further investment in sustainability strategy, a reinsurance solution written for a captive company can help to boost its risk profile.
A captive insurance company can be a strategic tool in helping companies to fulfil their ESG and sustainability targets. 九色视频recently worked with Switzerland’s largest mobility provider – the Swiss federal railways SBB – and other risk and insurance partners to develop a sustainability-linked reinsurance solution to help it link insurance premiums with sustainability performance.
The sustainability reinsurance solution links the achievement of greenhouse gas emissions (GHG) reductions with the insurance premium. A reduction in premium is achieved when sustainability targets are overachieved and a malus comes into place, if targets are not met. Both payments, on either side, are used for sustainability projects.
And companies in other sectors and other territories are also exploring innovative ways to use captives as a tool in achieving sustainability and ESG goals.
Sustainability solution for a captive
As well as overseeing and operating Switzerland’s railway network and operating regional and long-distance passenger traffic, SBB is a large owner of real estate and energy plants. As part of its sustainability efforts, it produces energy through hydrogenated power and photovoltaic systems installed on buildings and sites.
The company’s captive insurer, SBB 尤物视频AG, based in Lichtenstein, currently underwrites a diverse range of risks including construction, cyber and fleet, among other lines. SBB’s climate strategy is based on the Science-based Targets Initiative which helps companies to set emissions targets in line with the goals of the Paris Agreement on climate change. The SBB group aims to reduce its greenhouse gas emissions by 50% by 2030 and to be at net-zero emissions by 2040.
SBB was keen to find a way to link its emission-reduction targets with its insurance programme to accelerate the company’s sustainability efforts and to reward good performance. SBB’s captive worked with insurance partners – which were selected in part because they also have demonstrated a strong commitment to sustainability – to put in place a sustainability-linked reinsurance solution.
How it works
Designing a sustainability-linked reinsurance solution requires several principles to be outlined and understood by all parties. For example, a set of key performance indicators (KPI) need to be agreed upon and sustainability targets calibrated. In SBB’s case, the KPIs were based on a reduction in greenhouse gas emissions.
Having clear reporting and verification structures and a good understanding of the risk analysis and insurance characteristics of the captive is also vital.
The solution has benefits for both the captive and the insurer partners
In SBB’s case, the solution was structured so that if the pre-agreed targets are overachieved, a bonus – calculated as a percentage of our annual Property and Casualty premium - is paid to SBB 尤物视频AG – the captive – to benefit SBB’s sustainability fund. If, however, targets are missed then SBB 尤物视频AG will pay a malus to the insurance partners to benefits their sustainability projects.
A sustainability win-win
The solution has benefits for both the captive and the insurer partners. Not only does it result in a measurable positive environmental impact, it improves the risk profile of the captive client by integrating new metrics into how we all understand the risks.
The solution also positions SBB as an innovator and enhances its attractiveness to stakeholders, like customers, shareholders and colleagues, for whom sustainability is increasingly important. The financial incentive to meet targets helps to strengthen SBB’s commitment to sustainability, cements its position as a leader in that area and supports the longer-term resilience of the parent company.
There has been significant interest and positive feedback from captive peers, academia and the insurance industry in this solution and it could certainly be replicated in different regions or sectors.
Future solutions
As parent companies’ understanding of the use of captives develops, we are seeing them explore various other ways in which they can use a captive solution to help achieve ESG and sustainability targets and underwrite the risks associated with a changing climate, for example.
Some captives are using parametric insurance solutions, whereby payout is based on a trigger having been met rather than an indemnification of a loss, to cover risks associated with supply-chain problems s a result of natural catastrophes.
There is also scope for non-damage business interruption solutions for renewable energy suppliers to be written via captive solutions, for example, covering the risks associated with too much or too little sunshine, rainfall or wind.
Working with clients and other risk partners, including our colleagues at AXA Climate, we are excited to find solutions that contribute to the overall goal of sustainability strategy and good ESG performance both for our clients and ourselves.
Listen to the full podcast discussion with Robert Eigenheer, of Swiss Federal Railways (SBB), and Marine Charbonnier, at 九色视频 on the Global Captive Podcast .
