Flexibility and specificity: How captives could change the game for the higher education sector

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The insurance outlook is becoming more challenging for higher education institutions. Could captive insurance help address insurability challenges?

Higher education institutions are navigating an increasingly complex and uncertain insurance environment. Rising premiums, shrinking coverage options, and escalating litigation risks — driven, in part, by social inflation and the growing frequency of so-called nuclear verdicts — are creating significant challenges for colleges and universities striving to protect their people, assets, and missions with affordable, comprehensive coverage.

Amid concerns that emerging and evolving risks could lead to catastrophic losses, some insurers and reinsurers are exiting the higher education market. This is contributing to shrinking capacity, driving premiums and retentions higher, and increasing the number of coverage exclusions.

In this increasingly challenging risk environment, higher education institutions are exploring ways to improve their insurability, including through the adoption of captives as a strategic part of their risk management toolkit.

Captives offer a flexible and tailored approach that complements traditional insurance programs, enabling higher education institutions to take greater control over their risk financing and claims management. By prefunding losses and customizing coverage, captives help higher education institutions manage volatility and build long-term financial resilience.

Taking control of risk

At its core, captive insurance provides higher education institutions a way to take greater control of risk financing and claims management through a self-insurance vehicle tailored to their unique risk profile and financial capacity.

This flexibility allows captive owners to address exposures that are difficult or too costly to insure through traditional channels. This approach can be particularly valuable when commercial insurance markets are constrained or become prohibitively expensive, a situation many higher education institutions currently face.

Because a captive is owned by the institution itself, it enables self-insurance of certain risks, with coverage customized to the institution’s specific exposures and financial strength. By prefunding losses through a captive, institutions can reduce premium volatility and stabilize budgets — a critical advantage in a market marked by uncertainty and rising costs.

Captives are not intended to completely replace traditional insurance. Instead, they serve as a complementary tool that can:

Fill coverage gaps
Manage difficult-to-insure risks
Provide greater financial predictability

Captives are widely used across industries, including financial services, food and beverage, construction, mining, and healthcare. They are not solely a response to market uncertainty, but also make sense when market conditions are stable but inefficient.

Beyond addressing immediate market challenges, captives offer a long-term, strategic way to reduce volatility by prefunding losses, helping institutions to stabilize budgets and plan with greater certainty. Captives can provide institutions with immediate relief during a difficult market cycle by offering an alternative risk transfer mechanism when traditional coverage is constrained or costly. Over the long term, captives become strategic assets, helping institutions build resilience through better risk management, claims control, and financial planning.

A flexible approach to specific higher education risks

Captives enable higher education institutions to tailor coverage to their specific risk exposures, adjusting as market conditions and organizational needs evolve. Their inherent flexibility allows captive programs to cover risks that may be inefficient or difficult to insure commercially, such as:

Educators legal liability (ELL)
Property
Sexual assault and molestation (SAM)
Traumatic brain injury (TBI)
Chronic traumatic encephalopathy (CTE)
Excess liability
Cyber risk

Institutions facing significant property or business interruption risks — especially due to extreme weather events — can consider integrating parametric triggers within their captive. Parametric insurance pays out based on predefined triggers, such as weather indices, and typically provides quicker liquidity when an organization needs it most. This innovative approach enhances a captive’s flexibility.

Is a captive right for your institution?

Higher education institutions with a strong understanding of their risk profile and the capacity to absorb some risk internally may be well-positioned to benefit from a captive vehicle, whether by setting up a single-parent captive, renting a cell, or joining a group captive.

Key considerations to determine whether and what type of captive is right for your organization include:

Anticipated increases in insurance premiums or deductibles
Availability of traditional insurance coverage
An ability to absorb retained risk
Confidence in internal risk controls and claims management
Desire for greater flexibility and financial predictability

Types of captives that higher education institutions can consider

Single-parent captive: Owned by one organization to insure its own risks and those of related entities.
Cell captive: Sponsored by a third party, a cell allows businesses to share a captive structure while keeping risks separate in individual “cells.” This option offers lower startup costs and faster set up.
Group captive: Owned collectively by insured members, a group captive is designed to provide long-term cost stability beyond traditional insurance markets.

Building resilience amid uncertainty

As the insurance market continues to evolve and higher education institutions face rising costs amid an environment of systemic uncertainty, captives offer a flexible, strategic approach to managing these challenges.

For higher education institutions navigating today’s complex landscape, captives can represent a valuable tool that complements traditional insurance, optimizes risk transfer, and supports long-term financial stability.

To explore whether a captive is right for your institution, contact your Marsh representative. Our Captives team works closely with institutions to help design tailored captive programs and optimize risk financing strategies aligned with your organization’s risk-bearing capacity and financial objectives.

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