Guernsey licensed four new pure captives and protected cell company (PCC) in 2023, while eight pure captives surrendered their licences.
At 31 December, 2023 there were 199 active pure captives compared to 203 at year end 2022.
Six PCCs also surrendered their licence and there was no change in the number incorporated cell companies (ICCs).
At 31 December, 2023 there were 46 active PCCs and 15 ICCs. Within these cell companies there are 216 active cell, of which 123 are classed as doing captive business.
The domicile has historically been a go-to jurisdiction for UK-based corporates, as well as a strong option for international businesses.
Outside of captives, Guernsey has 55 commercial general insurers, 24 commercial reinsurers, 19 commercial life insurers and 42 special purpose vehicles.
Butler University’s student run captive insurance company has completed a domicile move to Vermont and been transformed into a protected cell company as it eyes collaboration with other educational institutions.
Butler first formed its captive in Bermuda in 2017 as the MJ Student-Run Insurance Company, Ltd. It insures livestock mortality, inland marine risk and product liability.
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Since inception, the captive has played a key role in supporting students on the Lacy School of Business risk management and insurance course, giving them hands on experience of underwriting real loss exposures, undertaking feasibility studies and business plans, analysis losses and adjusting claims.
Vermont’s captive regulators licensed The Davey Captive Insurance Company, managed by Hylant Global Captive Solutions, on 16 November, 2023.
Speaking on the Global Captive Podcast Victor Puleo, chair of risk management and insurance at the Lacy School of Business, and Craig Caldwell, Dean at the School, explained the latest evolution of the captive.
The captive’s formation in 2017 was based on a five-year feasibility study so having reached the end of that business plan cycle, they reached out to Claire Richardson, a captive consultant at Hylant, who had been a student at Butler and president of the captive in its early years.
“We got together and said: ‘What’s the next step? There is so much more we can do with this captive,” Puleo said.
“We had Hylant complete a strategic review and part of that was reviewing potential domiciles, including staying in Bermuda.”
Students in the risk management class completed the domicile review and Vermont was in the final two.
Puleo explained that some of Butler’s business partners have captives domiciled in Vermont, while the State’s former captive regulator David Provost had previously spoken at the University and its current deputy commissioner for captive insurance, Sandy Bigglestone, had also visited the campus.
Cell captive
Aside from the domicile move, the other big change for Butler’s captive is the change of type into a sponsored captive insurance company, known as a protected cell company (PCC) in other jurisdictions.
“By having the cell structure in the model that we’ve redomesticated to Vermont it does allow us a couple of opportunities,” Caldwell said.
“One is the education of our own students. They’re going to get an opportunity to explore some new techniques and new ways of reducing total cost to risk. But we also then have a curricular piece that we are well positioned to share with other universities.”
Butler is a private university, but Puleo explained most of the risk management and insurance courses in America, particularly the larger ones, are at state schools.
It is Butler’s proposal to offer use of the cells to these state schools so they can be included in their own curriculum and courses.
“What we really wanted to do is give a platform for the other universities with risk management and insurance programmes, where they could use a cell in their curriculum,” Puleo said.
“They could literally adopt a course in captive management and actually help to insure the risk at their universities – do a feasibility study, do the analysis, the whole nine yards.
“That is a huge educational opportunity for the students at the other universities that may not be getting that experience because they don’t have a captive.”
Puleo said they are not excluding universities that do not have risk management and insurance programmes, so if a risk manager at a university does not have their own captive but wanted to utilise a Butler cell that would be a possibility.
“Our goal though really is to expand to the undergraduate and graduate space in risk management insurance, the world of captives and actually have them use this experiential model that was developed by Butler University.”
Richardson believes this latest evolution of the Butler captive journey is a demonstration of the broader opportunity present in higher education for captives.
“The sponsored cell structure is going to aid in not only bringing the captive world into higher education, but also higher education to captives,” she said.
“We are going to be able to get really involved with the students and work not only with Butler students, but as the captive structure grows and evolves bringing on other schools’ and universities’ cells to the structure.
“So while we’re focused here on Butler and want to make sure Butler students are serviced and the Butler captive is also up and running and very significantly innovative, the next portion of that is bringing in additional students to Butler University, to other universities and showcasing the wonderful industry that captive insurance is.”
Listen to the full podcast with Butler’s Craig Caldwell and Victor Puleo and Hylant’s Claire Richardson on Captive Intelligence here, or on any podcast app. Just search for ‘Global Captive Podcast’.
In this GCP Short, produced in partnership with Hylant Global Captive Solutions, Richard brings news of the latest chapter in Butler University’s student run captive insurance company.
Butler originally formed its student run captive in Bermuda in 2017. The captive operates as a bona fide insurance company for the University, but also plays a key role in the education and practical experience offered to students on its risk management and insurance undergraduate course.
In November last year, the pure captive was re-domiciled to Vermont and transformed into a cell captive as Butler prepares to collaborate with other public educational institutions.
In a 25 minute discussion, Richard is joined by Dr Victor Puleo, Davey Chair of Risk Management and Insurance at the Lacy School of Business at Butler University, and Craig Caldwell, Dean at the Lacy School of Business.
We also hear from Claire Richardson, a Butler alum and captive consultant at Hylant, who has worked with Butler on the re-domestication.
For more information on Hylant Global Captive Solutions, visit its Friend of the Podcast page here.
For more information on the Butler Student-Run Captive Insurance Company and its educational courses, click here.
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Recent law revision allows captives to benefit from some regulatory relief
Large European corporates biggest user of the jurisidiction
Switzerland has more flexibility than EU domiciles, being outside of Solvency II
Absence of self-promotion hinders Switzerland’s growth and reputation
Switzerland has all the infrastructure to be a leading European captive domicile, but the jurisdiction could benefit from greater self-promotion on the international stage.
The country is recognised by most as being a highly sophisticated (re)insurance hub with a stable political and economic environment.
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AM Best has affirmed the financial strength rating of A- (excellent) and the long-term issuer credit rating of “a-” (excellent) of Vermont-domiciled Federated Underwriting Company. The outlook for the ratings is stable.
Federated is a single parent captive owned by global financial services company, State Street Corporation.
The captive was formed in 2019 as part of State Street’s alternative risk financing strategy following significant price firming in the commercial market.
AM Best considers Federated’s business profile to be limited, and its sole purpose is to take on specific risks related to State Street’s insurance programmes.
The ratings reflect Federated’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
The ratings also reflect the credit enhancement received from its parent.
As a relatively new captive, Federated’s historical operating performance has yet to be determined.
The operating performance assessment of adequate reflects AM Best’s neutral position until the captive’s business profile matures.
London’s world class (re)insurance infrastructure should give clients a great opportunity to utilise a “wonderful risk management tool” closer to home if the UK introduces a proportional captive regime, according to Chris Lay, CEO of Marsh McLennan UK.
Lay was speaking on the latest episode of the Global Captive Podcast, where he was joined by colleagues William Thomas-Ferrand, international captive practice leader at Marsh Captive Solutions, and Matthew Latham, alternative risk transfer leader at Marsh UK.
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The trio explained why Marsh is backing the initiative driven by the London Market Group and why it is important any new captive regime is proportional and sits outside of Solvency II.
“That’s the starting point, irrespective of domicile, the wonderful risk management tool that it is,” Lay said.
“In the UK context, given the size of the UK insurance market, the amazing capabilities of the ecosystem we have here, it’s disappointing that we’re not using that, leveraging that for the benefit of clients.”
The CEO added that post Brexit and with the opportunity for the UK to do things differently, now should be a good time to capitalise on the rise in the popularity of captives.
“Captives are growing at a pace that we haven’t seen for some decades,” he said. “All of those things, for me, points an opportunity for the UK.”
Solvency II
Debating what would make a successful UK domicile, Thomas-Ferrand emphasised the importance of the regulator recognising captives are “a lower risk entity” and ensuring any new captive regime sits outside of Solvency II.
“The policyholder, the insured, it’s all effectively one person, one entity, and that has to be front of mind,” he explained.
“Once you’ve got through that and have regulation that embraces that, you then start talking to the other key factors. The speed of setup, the ability to innovate and to change regulation as things evolve.
“You need to have a certain amount of flexibility. The regulator needs to be accessible. That’s the huge benefit that established captive domiciles have brought.”
On Solvency II, which the London market and UK government is keen to diverge from and is set to be rebadged as Solvency UK, Thomas-Ferrand said it is one reason very few UK companies own captives in EU domiciles.
“Solvency II has been really challenging for captives in Europe,” he added. “I think you can tell that from the fact there aren’t that many UK-owned captives that are in Europe. They’ve preferred to be in the non-Solvency II domiciles.
“Capitalisation is important and capitalisation is particularly important in the beginning years of a captive. We’ve got to make sure that that’s achievable to get the first one successful.”
Latham stressed that the ongoing lobbying of the EU by the captive market on the continent to reform Solvency II for captives further emphasised the need to get “proportionality right in the UK”.
“That was a regulation that was designed for commercial insurance companies and to protect policyholders, but it was obviously then applied to captives where it wasn’t proportional and that has had some impact on captives operating there,” he said.
“[Captives] may be holding much more capital than they need to and that’s why it’s really important that we get that proportionality right in the UK.”
One of the oft-cited factors that could give the UK a unique position as a captive hub is its global (re)insurance market and the local infrastructure and expertise that could support the development of captive business.
Latham said this is one of the reasons a UK domicile could be an appealing option to international businesses, as well as domestic companies.
“There’s no shame in trying to replicate what works well elsewhere and capturing different things from different domiciles to try and make sure we have a very competitive domicile here in the UK,” he said.
“One of the obvious [factors] is the link to the established insurance market. London is a massive insurance centre. Captives will typically need fronting insurance and we’ve got all of the big fronting insurers here with established teams.
“You’ve also got reinsurance, not just on a traditional basis but also the alternative risk transfer market.
“That means that you might not see just UK companies being interested in the UK domicile. You might see overseas companies, multinational companies who buy their insurance through the London market, giving it a good look to see if the UK could work for them.”
Asked what his message to clients would be should the UK put in place an appropriate captive insurance regime, Lay concluded by reinforcing the message that captives are a “great risk management tool”.
“You want to look at everything that’s available to you to get to the optimum solution,” he added.
“So I’ll be saying to clients, here’s an opportunity to look at that tool and here’s an opportunity to look at it close to home, in your backyard with one of the best, if not the best, ecosystems in the world with the infrastructure. How good would that be?”
The owner of a number of San Antonio medical practices has been told by the US Tax Court that he cannot deduct millions in premiums paid to micro captives because they are being used to avoid tax.
Dr Bernard Swift formed two St Kitts domiciled micro captives, Castlerock Insurance Co and Stonegate Insurance Co, in 2010.
A micro captive is a common name give to those captives that take the 831(b) tax election, meaning they are one taxed on their investment income. At the period in question, the annual premium limit was $1.2m.
On each of their joint federal income tax returns for 2012 through 2015, the Swifts deducted more than $1m in premiums paid and miscellaneous legal fees.
Between 2012 and 2015 the Swift captives participated in two risk distribution pools – Jade Reinsurance Group, in 2012 and 2013, followed by Emerald International Reinsurance, in 2014 and 2015.
Swift was advised by New York-based lawyer Celia Clark, infamously implicated in the 2017 Avrahami v. Commissioner case that also delivered Tax Court win for the IRS, and his certified public accountant Tim Schultz.
“Jade and Emerald were both Alabama captive insurers, formed to ‘function as . . . vehicle[s] to pool diverse risks ceded to them by’ Clark-related micro captive insurance companies,” the Court filings said.
Under certain reinsurance agreements, the Swift captives paid reinsurance premiums to Jade and to Emerald to reinsure a portion of their risk.
As part of quota share retrocession agreements, Jade and Emerald returned to the Swift captives 99.59% and 98.74% of the reinsurance premiums paid to Jade in 2012 and 2013, respectively, and 94.98% and 98.99% of the reinsurance premiums paid to Emerald in 2014 and 2015, respectively.
These amounts would not be released to the captives immediately but held in a trust account and released to the participating captives in tranches throughout the year.
The Jade and Emerald premiums also produced loss ratios that deviated significantly from the industry standard.
In his report, the Commissioner’s expert Dr David Russell stated that the industry loss ratios for reinsurance companies averaged 66.1%, 56.4%, 69.6%, and 66.3% in 2012, 2013, 2014, and 2015, respectively.
Jade’s and Emerald’s loss ratios ranged between 0.13% in 2012 and 7.91% in 2015.
“Although we do not contest the Swifts’ representation that Jade and Emerald together paid out millions of dollars in claims, this point is of no moment when seen in the context of the loss ratios,” the Court filing noted.
“The tiny loss ratios suggest that the premiums were priced much higher than what the risks called for, which calls into question whether these were actual insurance arrangements intended to distribute risk.”
Clark had emphasised to Swift the need for the captives to obtain risk distribution to be considered an insurance company for federal income tax purposes.
“Relying on her interpretation of our Court’s caselaw and IRS actions, Clark asserted that 30% of the micro captive’s total premiums would need to come from unrelated businesses in order for the arrangement to pass muster.”
The reinsurance premium for terrorism and political violence coverage fluctuated as necessary to achieve 30% risk distribution.
Jade and Emerald agreed to reinsure such coverage “depending on the client’s preference,” providing a flexible tool to adjust the reinsurance premiums to “whatever level necessary” to hit the 30% risk distribution overall.
“Based on the factors discussed above, we find that Jade’s and Emerald’s policies were not bona fide insurance arrangements,” the Court ruled.
Referring to its five previous 831(b) cases, the Tax Court stated: “In our [five] prior micro captive cases, we have focused on the elements of risk distribution and ‘commonly accepted notions of insurance.’
“We will do so again, and we again reach the conclusion that the microcaptive arrangement before us does not constitute insurance.”
Nevada licensed seven new captives in 2023, while seeing 62 surrender their licence, taking the total number of captives in the domicile to 100.
There were 155 active captives at the end of 2022.
Of the seven new captives licensed in Nevada last year, five were single parent captives, one was a protected cell company (PCC), and one was a risk retention group (RRG).
The State also licensed 12 new individual cells in 2023, taking the total number of cells domiciled in Nevada to 57.
Of the 100 year-end total, 76 are single parent captives, five are cell companies, three are agency captives, eight are RRGs, seven are group or association captives, and one is a branch captive.
Nevada’s total gross written premium for 2023 was $370m, down from $483m in 2022.
In October, Nevada Insurance Commissioner Scott Kipper told Captive Intelligence he was “awfully bullish” on the future of captives in the State and believes it has an opportunity to put Nevada “back on map” as a top three or four domicile for US captives.
HDI Global has appointed David Vigier as chief commercial officer for France, effective 19 January 2024, and will also “gradually” take over from Etienne de Varax as the industrial insurer’s head of captives.
Vigier will report directly to Jean-Marie Haquette, managing director HDI Global France.
“I am delighted that David Vigier is with us, as he combines expertise in sales, distribution, and captive services,” said Haquette.
“Together with his team, he will ensure that we fulfil the high expectations our clients and broker partners have with regard to our services and innovative insurance solutions, whether traditional or alternative offerings.”
Vigier joined HDI Global in September 2023 from Erget Group after previously holding roles at Sanlam Pan Africa, Europcar Mobility Group and AIG.
“HDI Global France has cooperated with captives for more than twenty years,” Vigier said.
He highlighted that HDI see captives as a significant and expanding opportunity for the carrier.
“The interest from French companies in captives keeps on rising for different reasons,” Vigier said.
“For some, the insurance market does not offer the right solutions for risk transfer,” he added. “For others, retaining more risk themselves may offer a strategic advantage.
“Whatever the reason, we want to be the partner in the transformation for our clients on their way to establishing or developing a successful captive.”
Nuno Antunes, managing director at HDI Global Portugal recently told Captive Intelligence that HDI Global sees captives as a “significant and expanding” opportunity for the company, both in the Iberian market and across Europe.
Dr Eberhard Witthoff is an independent expert and experienced senior executive for Claims Management and Risk Management. His main interest is to advise on the topics Climate Change and ESG risk and (re)insurance by bringing together operational insurance expertise and technological innovation.He has been Head of Claims at Munich Re since 2016 for the Global Clients and the region Asia-Pacific with a worldwide responsibility for Casualty and Cyber claims until his retirement end of 2022.Previously he was from 2005 Head of Claims for Germany and Central Eastern Europe and from 2007 to 2016 the Head of Claims for the regions Asia-Pacific and Africa. Before joining Munich Re in 1997 Eberhard began his career as an insurance and contract lawyer in a law firm in Munich serving clients worldwide.
John Morrey started his career in 1985 working for the reinsurance subsidiary of a large UK composite insurer in Lime Street, London. In 1989 he moved to Brussels to assist in the setting up of the European branch operation for the same reinsurer and ultimately became the Branch Manager. In 2002 he had the opportunity to work in Luxembourg for the Stonefort Group (one of Luxembourg’s largest captive insurance groups) where he acted as CEO until his retirement in mid-2023. He famously took Stonefort Group from a few files in a cardboard box to a team of 50+ people with over $1B in cumulated results and maintained an AM Best A- rating. In his retirement, John is maintaining his interest in the industry by digging down into important market developments such as ESG and working generally on good governance.
Corporate Social Responsibility (CSR) or now better known under the label “ESG“ is a topic that has long preoccupied the insurance industry. However, it has historically been more than just a green business trend or a voluntary commitment to the environment and human rights.
As part of the European Green Deal adopted in December 2019, tough regulatory requirements have been introduced by the EU. The Corporate Sustainability Reporting Directive (CSRD), for which the reporting standards were developed last year culminating in the European Sustainability Reporting Standards (ESRS), should be mentioned here in particular.
Equally important is the Sustainability Financial Disclosure Regulation (SFDR), which deals with the sustainability impact of financial products and regulates the extent to which financial products are ESG compliant. Finally, the EU taxonomy has created an overarching set of rules that establish the technical criteria according to which the sustainability of economic activities is assessed.
All of these rules apply to the European insurance industry and, by extension, also to captives in Europe. But even this is not the end of the story; regulation remains dynamic and is constantly being supplemented or even expanded, such as with the proposed Corporate Sustainability Due Diligence Directive (CSDDD).
Global relevance
Does all this legislation mean that ESG is now a purely European affair? Not at all: ESG regulation has become firmly established in the majority of Western countries, including those outside the EU.
In the USA, despite a heated political-ideological debate surrounding ESG criteria, the SEC has taken proactive steps to implement ESG reporting criteria. Individual states such as California have also developed their own ESG legislation.
In the UK, the FSA has actively addressed the ESG issue through a series of regulations, emphasizing the importance of transparency. The influence of ESG extends to all sectors of the global economy, including the insurance industry, impacting core business practices such as risk management and investment strategies as asset owners.
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How can captives adapt to this new reality? The ESG regulatory framework as a whole is initially quite intricate and confusing. The European Sustainability Reporting Standards (ESRS) alone encompass over a thousand data points and 12 standards that must be considered in reporting.
It is a real challenge to have a comprehensive understanding here, as there are numerous interdependencies and references between the regulations. The delineation of individual areas, the breadth of topics to be addressed, and the somewhat vague terminology pose a significant challenge for all concerned companies.
Unfortunately, that’s not all: it becomes quickly evident that neglecting compliance with ESG can lead to increased reputational risks. Even the liability risk for board members who are responsible for ESG matters will likely rise, as highlighted by the latest draft of the CSDDD, and taking into account the increasing number of lawsuits related to greenwashing or climate change. Nevertheless, all of this does not have to result in a corporate compliance drama.
With a strategic and structured approach, ESG issues can be addressed systematically, eliminating the temptation to dive into random initiatives. Our focus here should be on seven areas:
1. Buy-in of Top Management
The success of any ESG strategy and performance will be closely tied to the proactive leadership of top management. It’s not merely about assigning responsibilities and offering passive support, but rather about genuinely championing this strategy.
Board members, in particular, are tasked with creating robust reporting structures and actively promoting the transparency required by regulations. Not only does this serve the company’s best interests, but it also shields them from potential liabilities.
Consequently, managers play a pivotal role in driving the organisation’s commitment to ESG. This becomes even more significant as ESG is expected to impact the existing business model, giving rise to a separate KPI system alongside financial indicators.
2. Strategic Value
It’s not a question of devising an entirely new strategy, but rather expanding the current one. This involves defining vision, ambitious goal-setting, resource allocation, and prioritisation within an ESG context.
For instance, outlining how the company will enhance its ESG performance over time and successfully undergo a business model transformation. The foundational principles of sustainable insurance can serve as a starting point for captives.
Focusing on the core principle of double materiality is crucial. In addition to knowledge of the regulatory requirements, content guidelines such as the Global Resource Institute (GRI), Task Force on Climate-related Financial Disclosures (TCFD) or Task Force on Nature-related Financial Disclosure (TNFD) are a useful addition to the development of the strategy.
Finally, the stakeholder approach and dialogue should also be part of the strategy, as the issue of stakeholder involvement, both internally and externally, is central to the capturing of all ESG factors.
3. Alignment with the Value Chain and Core Functions
In the following, the focus of ESG orientation in operational practice is placed on risk management and the core functions of underwriting and claims management. The challenge for underwriting is that, in addition to the pure underwriting risk assessment, new fundamental decisions must now be made about the ESG quality of the business.
There are overlaps here, for example, when it comes to the issue of climate change and the effects of future extreme weather events that are difficult to predict on the exposure of risks.
Climate change will become a driver for increased damage costs, but will also lead to additional expenses in reconstruction when it comes to green or environmentally friendly build better programmes or more resilient building structures.
However, new dimensions are also emerging. Greenhouse gas emissions played only a subordinate or even no role in insurance terms, but as an ESG criterion they can be a decisive factor in underwriting the risk.
For example, the Partnership Carbon Accounting of Financials initiative (PCAF) has created a standard procedure for determining greenhouse gas emissions for the financial industry. This can be used for an individual risk as well as for an entire portfolio, so that, for example, new fossil fuel risks are placed on an exclusion list.
Scenarios that represent an environmental pollution risk have already been included in insurance terms. But, from an ESG perspective, this does not only apply to the exposed sectors; the negative impact on biodiversity, which has not yet been included in insurance terms, is also becoming highly significant.
In the past, the protection of human rights and the rights of indigenous communities only had a general political background. Now, for example, insuring a large infrastructure project in the rainforest from an ESG perspective could fail if the human rights situation is forecast to be negative. And, finally, governance issues such as corruption and unethical practices must also be addressed more intensively when underwriting risks.
Risk management is closely interwoven with underwriting. The captive can concentrate on analysing the risks of its parent company and work with it to develop risk metrics that are linked to its ESG risks.
Risk management also supports ESG compliance due to regulatory requirements and can simultaneously contribute to the development of measurement criteria for the assessment of sustainability risks.
This in turn enables the portfolio to be managed sensibly from the perspective of both climate risk and underwriting profitability. Risk management can also be interwoven with reputation management, which plays a special role in ESG issues, for example by identifying interfaces with NGOs and where problems for ESG compliance can be recognised at an early stage through direct communication channels.
Of course, the investment side is also important for a captive. Even if there are already funds under the Sustainable Finance Disclosure Regulation that contain classifications under ARt. 8 and 9 that provide for sustainability in a binding manner, this poses major challenges in practice, especially in terms of how, for example, financial alignment between the captive’s liabilities and assets is established through sustainable investment management.
4. Tackling the Data Challenge
To meet the requirements of ESG regulation and build a meaningful ESG risk management system, it is necessary to generate or collect the right data.
ESG data includes all indicators that provide information about the sustainability context of a company or its value chain. It is therefore important to identify the data required and to locate the data sources, whether within the company, at the client or in publicly available sources, and then to make them available in a way that can be used for business and audit purposes.
Historical data, of which insurers traditionally have a large stock, is suitable for this purpose, but current or future data is even more important. In addition to the question of quantity, there is also the question of data quality, which is an even greater challenge for many companies.
With the boom in generative AI, data quality in particular will need to be driven forward for the development of proprietary AI models. In particular, AI systems require high-quality data for machine learning and training in order to meet future regulatory requirements and to deliver correct and verifiable results.
The data horizon is also expanding to the extent that geospatial data is becoming increasingly relevant for ESG risk mapping, for example to assess the impact of climatic and man-made changes on the Earth and where preventive action can be taken.
Given the importance of IT systems in the insurance industry, it will be important to determine how data sources can be intelligently connected (data connectivity). This is all the more important given that many insurers still rely heavily on legacy systems that cannot be easily extended or replaced.
5. Building Interdisciplinary Teams
ESG covers many subject areas, requiring networked and holistic thinking regarding one’s own organisation and the impact of entrepreneurial activity. Therefore, it is important to include scientific principles and developments alongside economic and legal considerations. Working with interdisciplinary teams on the path to ESG compliance is highly recommended. The stakeholder approach can assist in identifying areas where special expertise is required.
If top management integrates the significance of ESG into its strategy and establishes this direction from the top down, it ultimately involves a new approach to corporate culture. Therefore, it is crucial to communicate the ESG strategy and, above all, how it is communicated, as this is a prerequisite for the company’s transformation towards sustainability to succeed.
6. Education and Awareness-Raising
Dealing with ESG factors is often viewed as a mere formality, involving ticking various boxes. However, successfully addressing ESG factors requires taking them seriously and integrating them into the company’s reality. This excludes ‘greenwashing’ certain activities, which can be dangerous in terms of liability, or ignoring ESG factors altogether.
The initial step is to raise awareness, which will result in increased transparency within the company. This necessitates training managers and employees through appropriate programmes.
Ultimately, employees are the crucial interface with customers and other stakeholders during implementation (e.g. via ESG KPIs). Ideally, this will generate the necessary commitment and integrate ESG factors into the process.
Young professionals, in particular, aim to contribute to the sustainability process and are increasingly recognising its importance in daily business operations. Training measures are most effective when employees are committed to implementing the ESG strategy and developing best practices.
7. Opportunity Mindset
It is important to communicate the opportunity side of the ESG issue within the company. Sustainability has become a competitive factor, and the issue of climate change alone requires a captive and its parent company to consider necessary adjustments to their business model.
The close relationship between captives and their parent companies’ business activities creates many synergies in sustainability. Captives can act as catalysts for overcoming sustainability challenges and risk management for the parent company. Insurance, in particular, can support the transformation to more sustainable business activities. The captive can support the development of ESG policies and action plans of the parent company.
New business opportunities may arise from the ESG strategy if it leads to value-enhancing data connectivity. The transition phase may also require new insurance solutions in many industries.
ESG regulation is often still “work in progress”. It is recommended to consider proactively the impact of regulations on your business, including potential new opportunities. Regulations can also lead to new business trends, which may require new insurance products or loss prevention strategies.
Conclusion
ESG is a long-term journey, not a short-term trip. Meeting the requirements of supervisory authorities may not be easy, but it is achievable with a focus on clear explanations and transparency.
Implementation may require investments, but these costs can be offset by good strategic positioning. While the task is challenging and complex, it can be accomplished with the right attitude and a structured approach.
