As society increasingly pivots towards clean and green energy solutions, driven by the imperative of sustainability and the dramatic effects of climate change, the energy landscape is undergoing a profound transformation. Companies across all industries are embracing renewable alternatives and adopting environmentally conscious practices. This shift can lead to many obstacles when it comes to liabilities and coverage. Last week, I had the pleasure of attending the International Risk Management Institute (IRMI)’s Energy Risk & Insurance Conference (ERIC) which tackled this very issue. Experts across the risk management industry convened to discuss emerging energy risks and potential solutions. I had the pleasure of presenting on this topic, “Captives—Too Late for Fossil Fuels or Too Soon for Green Energy?” and wanted to share some key insights.
The Legacy of Traditional Energy
For decades, traditional energy sources like coal, oil, and natural gas have served as the pillars of global energy infrastructure. These sources have powered industries, fueled transportation, and sustained economies worldwide. However, their reliance on finite resources and contribution to environmental degradation have brought their sustainability priorities into question.
While traditional energy remains deeply entrenched in global economies, its future is increasingly uncertain. Mounting pressure to reduce carbon emissions, coupled with the emergence of renewable alternatives, has catalyzed a shift towards cleaner energy sources.
The Promise of Renewable Energy
The rise of renewable energy technologies such as solar, wind, and hydroelectric power represents a socio-economic shift towards sustainability. These sources offer cleaner alternatives, reducing carbon emissions and mitigating the impacts of climate change. Their abundance and renewable nature make them promising candidates for a greener future.
However, the transition to renewable energy has its challenges. The intermittency of renewable sources coupled with the need for infrastructure investments, presents hurdles to widespread adoption. The inertia of traditional energy industries along with regulatory complexities further slow down the pace of transition.
The Role of Captive Insurance
Amidst this energy transition, captive insurance has been at the forefront for risk management teams trying to optimize coverage and reduce costs. With few regulations, many insurers are moving away from insuring coal and creating more inclusive policies for oil and gas. It is estimated that 62% of reinsurers now have coal exit policies and 38% have oil and gas exclusions as shift away from fossil fuels accelerates.1 Insurance coverages and costs coupled with sustainability priorities have many organizations questioning if switching to alternative energy sources is critical.
On the other end of the stick, insuring green/new energy has not been easy. Although we are seeing new coverages such as leakage insurance for CO2, and coverage for solar, hydrogen, and bioenergy, pricing and underwriting remain huge issues. With any new risks, there are still untested coverages and language that may lead to future conflict when claims are filed. Many insurers also worry about the scalability of the new coverages once many companies shift to green energy; how will the underwriting processes and pricing shift or scale once more companies adopt green energy?
This natural lack of transition had sprouted a giant funding dilemma of insuring energy companies. Although many large companies are self-insured and/or adopt captive insurance as a solution, often mid and smaller companies are stuck in no-man’s-land. Many of these companies are looking into alternative funding options, such as a group captive, to help share risks with similar organizations without paying obscene premiums. This allows mid and smaller energy companies to meet lender requirements at lower rates and reduce net costs through reinsurance.
Where are Things Headed?
I expect in the coming years we may see drastic changes in how energy companies are insured; a lot depends on how committed commercial insurers are to exiting certain industries and promoting new energy coverages. There seem to be certain lines/industries that scale faster, both with regard to comprehensive underwriting processes and pricing volatility. Another significant consideration is governmental/regulatory changes. With climate change as a major political issue, policyholders and insurance companies may need to adapt more quickly if regulations are passed pushing for the use of green energy.
In conclusion, the dichotomy between old and new energy and how to properly insure them is a hot-button topic in the risk world. As older energy sources, such as coal, are becoming more and more uninsurable, newer green energy sources are untested and challenging to underwrite. We are in an interesting position where insurance companies and policyholders know they must shift towards renewable energy but cannot properly insure it (yet). Although alternative funding options, such as captive insurance, have proved thus far to be a solution, there are still so many unforeseen variables that will undoubtedly affect how energy is insured.
1 https://global.insure-our-future.com/with-new-coal-uninsurable-insurers-start-to-move-on-oil-and-gas/
In a recent podcast from Global Captive Podcast, president and CEO of edRISK, Tracy Hassett, and our SVP, Prabal Lakhanpal, dive into the history of edRISK and how educational institutions have been able to leverage a captive to reduce health insurance costs and reduce liability. You can find the full podcast episode here.
Our SVP, Prabal Lakhanpal, was featured in a panel discussion alongside other CICA NextGen participants to discuss how to best attract younger talent, obstacles the industry is currently facing, and the future of careers futures in captive insurance. You can find the full discussion here.
Every year, the Risk Management Society (RIMS) hosts its annual RISKWORLD conference, serving as an opportunity for 10,000+ risk professionals to convene and discuss the industry’s future. Against the backdrop of San Diego, this year’s conference was a testament to the ever-evolving landscape of risk management and insurance. As industries grapple with unprecedented challenges, the conference emerged as a beacon of insight, fostering discussions on cutting-edge practices, emerging trends, and innovative strategies. Here are some of the most popular topics discussed during this year’s conference.
1. Emerging Trends and Industry Challenges
The insurance industry is constantly evolving, presenting both opportunities and obstacles for risk management professionals. These sessions explored the latest trends, regulatory changes, and strategic approaches to navigating the dynamic landscape of risk management.
– As climate change and natural disasters continue to impact rates nationwide, experts discussed “How All Industries Can Manage Their Water- and Nature-Related Risks.”
– The session, “Risks Today or Risks Tomorrow? Leveraging Data for Future-Proof Risk Management,” featured how geolocation and risk data are being used to influence property and casualty (P&C) strategies.
2. Forward-Thinking Approaches and Strategies
Innovation lies at the heart of effective risk management, and RISKWORLD 2024 showcased forward-thinking tactics for staying ahead. From optimizing risk transfer and resilience planning to exploring new methodologies for risk assessment and mitigation, attendees gained valuable insights into cutting-edge techniques and innovative strategies that are reshaping the landscape of risk management, ensuring they are well-equipped to tackle the challenges of tomorrow.
– A lawyer discussed common roadblocks and assumed contractual liability regarding “Strategies for Effective Risk Transfer and Mitigation.”
– Financial leaders from LinkedIn and Orgill discussed their concerns about employee safety, mitigating risk and ensuring organizational success in their session, “From Forecast to Forefront: New Research on the CFO’s Strategic Mindset and Trends to Watch in Risk Management.”
– A risk manager from a manufacturing organization discussed the importance of “Strategic Decision Making” and how to address suboptimal results internally.
3. Diversity, Equity, and Inclusion (DEI)
Promoting diversity, equity, and inclusion has become a strategic imperative for organizations across industries. These sessions highlighted the importance of fostering inclusive workplaces, advancing DEI initiatives, and leveraging diverse perspectives for business success.
– Leaders from the National African American Insurance Association (NAAIA), the Asian American Insurance Network (AAIN), the Latin American Association of Insurance Agencies (LAAIA), Rainbow Risk Alliance, Insure Equality, and the Association of Professional Insurance Women (APIW) shared their experience with introducing DEI efforts in their discussion, “Championing Diversity: Industry Leaders Speak Out.”
– In the session, “DEI Is Not Going Anywhere and Here’s Why: The Who, What, Where, When and Why of DEI,” experts discussed the importance of DEI programs and specific success stories.
– As DEI is receiving some societal backlash, the presentation “The Rise and (Fall?) of DEI: Exploring the Impact of Diversity, Equity, and Inclusion Initiatives on Risk Management” focused on current trends and future of DEI efforts.
4. AI, Technology, and Innovation
Innovation in technology is transforming the insurance landscape. These sessions delved into the role of artificial intelligence, cybersecurity, and data analytics in shaping the future of risk management.
– In their presentation, “AI Revolution: A New Era for Risk Management and Loss Control,” a group of risk managers discussed how they are using AI to help with workers’ compensation applications, loss prevention, and fraud identification.
– Google Cloud’s CISO discussed the latest trends in generative AI and how it can impact the insurance sector in his session, “Navigating the W(AI)LD West: Maximizing the Transformative Power of AI.”
– A session from the RIMS New York Chapter, “AI Did What? Anticipating Insurance Coverage Issues Arising from AI Liabilities,” evaluated the kinds of liabilities and potential issues that can arise from utilizing AI in risk management.
As the curtains draw on another successful RISKWORLD conference, the Spring team and I had a great time tuning into some insightful sessions and reconnecting with industry leaders. The spirit of collaboration and innovation was lively this year, and I’m excited to see what next year’s conference has in store for us.
Our SVP, Prabal Lakhanpal was quoted from a recent article from Captive Intelligence regarding the relationship between workers’ compensation and captive insurance. Check out the full article here.
Every year, Captive Review recognizes 50 of the most influential captive figures on their Power 50 list. This year our Senior Vice President, Prabal Lakhanpal was featured as #40. You can find numbers 50-31 here.
Our Senior Consulting Actuary, Nicholas Frongillo has been recognized by Captive Review among other upcoming talent to watch in the captive insurance space. Check out their full article here.
Our managing partner, Karin Landry, has just been inducted into Captive Review’s Hall of Fame. It spotlights leaders in the captive insurance industry who have provided major contributions to the industry. Check out the full article here.
Our VP, TJ Scherer, was recently quoted in an article from Captive.com spotlighting how captive domiciles count captives differently, which can influence how people and organizations view successful domiciles. Check out the full article here.