BURLINGTON – Concerns over climate change are driving more companies to embrace green technology, but the move is changing the nature of risks they must manage, sometimes increasing their exposures.
As commercial policyholders face significant climate-related risks, they are making greater use of captives, a panel of experts said.
Natural catastrophe losses remain elevated, with global insured losses exceeding $100 billion for the fourth consecutive year in 2023, said Daniel Raizman, Boston-based global head of client engagement in Aon PLC’s climate risk advisory division.
And the trend has continued in 2024, with U.S. insured losses from severe convective storms alone hitting $39 billion in the first half, he said during a session Wednesday at the Vermont Captive Insurance Association’s annual conference.
Much of the catastrophe exposure growth is attributed to demographic changes, as more people move to coastal areas, but climate change is also likely contributing to the increase, Mr. Raizman said.
As climate change threats rise, companies are looking to alternative energy sources, but moving to green energy production can also increase risks, said Andrew Baillie, Haymarket, Virginia-based program director of global insurance for AES Corp., a global energy company.
For example, AES has a coal power station in Puerto Rico that Category 5 storms have hit three times without going offline, he said.
“Next time a Category 5 storm runs over a solar park in Puerto Rico, it’s not going to be the same answer,” Mr. Baillie said.
In addition, renewable energy sites can have very high values. For example, AES is building solar facilities with more than $1 billion worth of solar panels in concentrated areas and often the available commercial insurance coverage is a fraction of the panels’ value, he said.
“The protection gap is enormous between the value at risk and what you actually want to be able to protect,” Mr. Baillie said.
AES is making greater use of its Vermont-domiciled captives to cover the exposures, he said.
“Our money is on the line first, so we are committed to risk engineering, and we have three engineers on our staff,” Mr. Baillie said.
Climate change is also increasing exposures for the Lancaster County Solid Waste Management Authority in Lancaster, Pennsylvania, which operates two waste energy facilities and waste management facilities, said Chief Financial Officer Daniel Youngs.
Waste management organizations have suffered several catastrophic fires in recent years, driving up insurance rates, and the nature of the materials they process is changing as they deal with renewable energy-related risks, such as old solar panels and batteries used to store green power, which are combustible, he said.
LCSWMA set up a captive in 2021 in response to higher rates, reduced capacity and increased coverage exclusions, Mr. Youngs said.
“The captive has generated a vehicle that allows us to be differentiated,” he said. “It’s also allowed us to take on more risk and put more skin in the game.”
