By Catherine Dorrien ,
Southeast Captive Consulting Leader, Marsh Captive Solutions
31/07/2023 · 5 minute read
Construction industry companies are increasingly utilizing a non-traditional method to manage their risks in the face of challenging insurance market conditions, Marsh data has revealed.
Marsh Captives Solutions’ 2023 benchmarking report shows a third consecutive year of impressive global growth of captive insurance.
Property-related captive premiums – which combined with casualty premiums represent 83 per cent of all construction captive premiums placed by Marsh – have grown by 13 per cent in the past two years.
Within this growth, Marsh has seen increased usage of captives for wrap up – including Owner and Contractor Controlled Insurance Programs (OCIPs and CCIPs, respectively) – as well as subcontractor default and environmental policies.
The rise of captives could be driven by consistent increases in the cost of insurance, with Marsh’s Q2 2023 Global Insurance Market Index showing composite pricing rising for the 23rd consecutive quarter, continuing the longest run of increases since the inception of the Index in 2012, combined with reductions in capacity and tighter restrictions in coverage.
Captive insurance is a risk-financing mechanism in which a company insures itself against future losses.
When facing higher premiums, a lack of capacity, increased deductibles, and more stringent terms and conditions, captives offer an opportunity for businesses to more efficiently manage risk. And, with better risk management comes an array of potential benefits for an organization’s bottom line and their employees as they will often see reduced costs, improved investment strategies that can be customized to the company’s short and long-term needs, and an ability to invest surplus capital into better employee benefits, product innovations, and more.
Captive insurance can add value to a wide variety of companies, from large multi-national contractors with revenues greater than US$1 billion and smaller contractors to project owners and developers.
Assessing whether a captive insurance program makes sense for your business’ unique risk vulnerabilities and strategic goals will require a wider conversation across your organization.
Although captive insurance programs come with many potential benefits, there are some important considerations that may factor into your decision when it comes to creating one, including: capital and time commitments as well as operating cost.
The following questions can help support your company’s decision-making process and the eventual development of your captive program:
If the answer to all or most of the above questions is “yes,” then a captive insurance program may be a viable option for your organization’s strategic risk management program.