Risks associated with the energy transition, for both the producers and consumers of energy, are already making their way into captive risk profiles, but taking a “forward looking underwriting approach” will be required by both the commercial market and captives to provide the required capacity.

Speaking on the Global Captive Podcast Vicky Roberts-Mills, global head of energy transition at AXA XL, and Owen Williams, global program and captives regional director for the UK at the insurer, explained the challenges the transition is presenting to the commercial market and the role for captives in supporting insureds.

“We have a significant role as insurers to ensure that we’re effectively at the cutting edge of understanding those technologies in terms of the renewable energy supply, how we can  build our skills and capabilities to price those risks effectively,” Roberts-Mills said on the podcast.

“We’re now needing to start to develop capabilities and that mindset to be able to take a more forward-looking underwriting approach with these technologies, and that’s different for the industry.

“New technology has been something that the insurance industry has typically never liked. We need to work very closely with clients to understand their engineering and design decisions and be able to also, as an industry, be able to develop the right products and services that support them.

“Some of those products and services that we’ll begin to see and are already beginning to see are often beyond or evolving from the traditional property casualty kind of business interruption areas.”

Concerning the role for captives, Williams explained that most captives are already seeing an impact on their risk profiles because businesses across all sectors are adapting their business activities to meet various transition objectives.

“It’s quite important to understand that any transition risk is not a separate insurance product in the way that perhaps the market looks at cyber,” Williams said.

“It’s baked into all the traditional lines, so if you’re a captive owner, this risk for your business is going to inadvertently end up in your captive.

“Have you thought about that risk? Have you really consciously decided what you want to take in terms of that risk? How much does it change your risk appetite? What does it do to your risk profile? And what does it do to your captive pricing?

“All those questions need to be really well thought through rather than kind of just accepting it without thinking about it.”

As to whether captives have a pro-active role to play in supporting insureds in attracting coverage and building capacity for the new technologies and business ventures more directly associated with the energy transition, Roberts-Mills and Williams did not doubt it.

An estimated $130 trillion of investment is needed globally to reach net zero by 2050, so an incredible amount of insurance capacity is going to be required just to support the necessary large-scale infrastructure projects.

“I’ve certainly seen from an industry perspective across the client base an increasing role of captives, particularly in renewable energy infrastructure, construction projects,” Roberts-Mills said.

“Whether or not that’s buying down deductibles, using it as a quota share to their programmes. We’re going to see an increasing role of captives in this space.”