There is a surge in ESG-reputational risk demand but capital is scarce, finds Steel City Re
Demand for environmental, social and corporate governance (ESG)-reputational risk insurance is surging, but, according to Nir Kossovsky (pictured), chief executive officer of Steel City Re, there is a lack of capital available.
The company, an insurance intermediary and risk advisor for reputation and ESG-linked reputation risk based in Pittsburgh, is currently “very busy”, Kossovsky said, adding that ESG related issues or ESG linked reputation concerns are “bubbling to the surface”.
He said these concerns were “capturing the minds of members of boards of directors, which pretty quickly captures the hearts and minds of chief risk officers. The risk management issues most relevant to Steel City Re are threats to boards of directors from litigation and regulators.
“Our insurance products largely function like first party D&O liability insurance. The D&O liabilities arising from a range of concerns that tie back to ESG-related issues are the drivers for us,” Kossovsky said.
“We are observing a surge in regulatory action and claims being filed, which means the needs for protection from an insurance perspective and for risk mitigation from an advisor perspective are surging.”
In response to this demand, Kossovsky said the company was upgrading many more corporate enterprise risk management operations to address ESG-reputational risk. “Frankly we’re a bit starved for reinsurance capital as demand is surging,” he added.
Kossovsky said that as the company’s insurance product is a parametric cover, its principal market is Tokio Marine Kiln, with support from Miller insurance.
“We’re now looking at some of the major European insurers for direct support as well,” he added.
“The insurance industry is under tremendous pressure to manage its costs and its price.” Nir Kossovsky
Captive base
The firm’s priorities are for its staff to be able to provide the high quality of reputational advisory services but now at a much grander scale, alongside providing reinsurance for captives, which are increasingly retaining reputation risk in a working layer.
“Our business has been built around captives and their reinsurance. Early on, captives were the primary bearer of risk for the types of products we write because there simply wasn’t any capacity in the markets,” Kossovsky said.
“We’re able to reinsure those captives but the number of captives is growing and the amount of reputation and ESG-linked reputation risk that’s being put into captives is impressive.”
Kossovsky said the greatest challenge the insurance industry is facing, coming off the back of his comments about captives, is remaining relevant. “The capacity available in the industry is just a small fraction of what is available in the capital markets through various swaps and other types of instruments.
“Parametric solutions that use the capital markets are as easy to implement as parametric solutions for insurance. And the concerns that the insurance industry has about being able to measure and absorb the risk of a number of issues that are now top of mind for most clients creates an interesting friction where clients are turning to their captives for coverage or turning to the capital markets for reinsurance of their captives,” he explained.
“In that environment, the insurance industry is under tremendous pressure to manage its costs and its price as well as remain conceptually or intellectually relevant to the need of the market right now.”
