As long as COVID-19, natural catastrophes, and a hardened commercial insurance climate dominate news headlines, many sources anticipate the current captive market growth to continue through 2022.
Evidence of the continued expansion is supported by Aon’s 2021 benchmarking survey results which shows captive and protected cell usage has increased across many industries in the past two years, with pronounced increases for hard-hit lines: property damage / business interruption, Directors’ and Officers’ and Cyber.*
Further indication that captives continue to be a good option for risk management can be based on the rise in new types of risks that are emerging. Supply chain disruptions brought on by COVID-19, and significant increases in natural disasters are two such examples. As businesses look for ways to take on these new challenges, captives and other alternative risk transfer strategies are viable solutions for losses that traditional insurance may not be able to cover.
The Importance of Tailor-Made
When evaluating new risks associated with emerging challenges, looking at past performance can help set the course for future loss mitigation. Because captives are custom designed based on an organization’s historical loss data, their very structure affords built-in methods for use in risk assessment. Having past data to analyze provides valuable information that can be used as a tool to create a more informed way to navigate forward.
AssuredPartners Captives Vertical Team understands the complexities of alternative insurance options. We can provide guidance to assist in crafting your company’s custom program. The benefits of a captive start at the very beginning – by defining your financial and risk management objectives. The details are then refined to produce the best option based on your organization’s needs.
We also understand that designing the right solution for your specific requirements is just the start of the process. Selecting the right service partners for claims and loss control is equally important. Continuous improvement using lessons learned from every claim keeps safety front and center. We work in tandem with your internal team to enhance that process.
Be on the Lookout
While the captive market continues to grow, that doesn’t mean this alternative doesn’t have any shortcomings. Nick Napolitano, Captives Vertical Leader for AssuredPartners, has this reminder: “Just as all businesses must deal with certain challenges, captive members, like any savvy business leader, should be aware of certain concerns affecting alternative risk strategies.” He continued with, “It’s important organizations work with a service provider they trust to successfully navigate through these challenges.” Fast-paced changes, skilled worker shortages, and regulatory compliance updates are three things to be aware of in the current business climate.
- Pandemic Uncertainty: The uncertainty of the pandemic means business leaders are assessing better ways to prevent supply chain disruption and business interruption. Jack Foley, Senior Vice President of AssuredPartners Captives Vertical is watching closely for any future changes to captive financing structure as business leaders scrutinize these challenges and learn from their affects. According to Foley, “Our team uses lessons learned to provide feedback that helps organizations build a better risk management program.”
- Shortage of Workers: As most industries face a workforce shortage, the insurance industry is no exception. “It’s important to have the right team in place. We’ve been laser focused on attracting and retaining employees with captive experience,” says Lori Harris, AssuredPartners Captives Vertical Director. Growth in the number of captives forming means more people are needed to manage the complexities of these programs. “To provide the management, administration, and compliance required, emphasis on new ways to appeal to younger recruits while keeping seasoned professionals is necessary,” she adds.
- Regulation Compliance: New regulations are another area to keep in mind. All eyes are on the European Commission as they adopt Solvency II requirements. The International Financial Reporting Standard (IFRS) takes effect in 2023. This standard consolidates how insurance entities value and report on their contracts for greater transparency. Also, the U.S. states that domicile captives are enacting new regulations. It’s important to keep a close eye on these new guidelines.
There’s so much to consider when exploring the possibilities of joining and managing a captive – who to partner with, risk vs. reward, financial structure – we are here to help guide you through the process as well as provide recommendations to help clarify your decision. Our team is committed to assisting you in making the best choices for your company. Contact us at firstname.lastname@example.org to talk to a team member about all your options. There is Power Through Partnership.