The benefits of captive insurance in a soft market

Global demand for captive insurance continues to rise, with the number of captives reaching 6,290 in 2024, despite easing commercial insurance rates.¹ Marsh Captive Solutions alone established 92 new captives during the year.

What is captive insurance?

Captive insurance is a risk financing mechanism where a company insures itself against future losses by creating a licensed company that provides insurance coverage to its parent organisation and affiliates.

Captives are more often formed in response to a hard market, characterised by high rates and low competition among insurers, as businesses seek to contain costs and access capacity amid soaring premiums. However, organisations today are increasingly using captives as a strategic risk financing tool that delivers long-term value, stability and flexibility, regardless of market cycles.

Why does captive insurance remain popular in a soft market?

1. Long-term value

Captive insurance plays a major role in enhancing the stability of an organisation’s risk financing strategy, allowing companies to tailor coverage to their unique risk profiles and strategies to realise the following benefits:

Buffer against market instability

Captive insurance can offer multiyear, multiline, integrated aggregates, providing businesses with pricing stability through consistent annual premiums. This approach ensures comprehensive protection and streamlined management. In contrast, traditional insurance policies are typically renewed annually, which can lead to fluctuations in pricing and coverage.

Risk retention and expansion

As businesses retain premiums within the captive instead of paying them to an insurer, surpluses generated from a well-performing captive can be used to fund other vital investments.

Strategic growth management

Captive insurance can enable organisations to manage growth-related insurance costs. As companies expand, insurance premiums naturally increase, even in a softening market. By utilising captives, businesses can proactively address these rising costs and align their risk financing strategies with their growth objectives.

2. Expand coverage options for persistent risks

The softening market does not apply consistently to all lines and markets. Businesses can explore this opportunity to write other lines of insurance within their captives.

For example:

Auto liability saw increases of 5% to 10% in Japan and Thailand. Globally, the hard auto liability market is driving increased interest in captives, particularly for those with fronting capabilities and even for the majority that require a front, along with the associated fronting costs.
Despite declining rates in cyber insurance, the severity and sophistication of ransomware attacks remain a significant concern for insurers, particularly around data encryption and business interruption. Companies are using captives to cover specific layers of cyber programs that may not be efficiently priced in the commercial market.
Medical trend rates, defined as the year-over-year cost increase for claims on a per-person basis made under a medical scheme, remain persistently high in Asia, rising by 13% year-on-year in 2024, outpacing inflation by over five times in the region . Costly employee benefits present an opportunity for businesses to control health and benefits costs through a captive.

As part of a broader alternative risk transfer insurance strategy, captives enable companies to mitigate cost impacts across all market cycles through tailored risk management strategies.

3. Unlock capacity for complex and challenging risks

Businesses with an adverse loss history, or those operating in high-risk industries, continue to face strict underwriting criteria by insurers.

Despite declining property premiums in Asia, organisations are actively reviewing deductibles, self-insurance and placement options, driving greater interest in alternative risk transfer solutions, such as parametric insurance and captive insurance.

Captive insurance can also be used as a vehicle to purchase other alternative risk transfer solutions that may not be readily available in traditional markets. For example, parametric solutions can provide quick payouts based on predefined triggers, helping companies manage disaster risk financing strategies more effectively.

By creating capacity for complex and challenging risks, captive insurance enables organisations to build more resilient and comprehensive risk financing programmes.

How to successfully set up a captive

While more businesses are using captive insurance to control costs and manage risks strategically across their organisations, it is important to be aware of potential pitfalls when setting up a captive insurance programme. These include failure to comply with local regulatory requirements, inefficiencies in operating costs and risk retentions, and insufficient coverage of risks.

Over the last decade, Marsh has conducted more than 1,000 captive feasibility studies worldwide, including in Asia, helping organisations across industries make informed decisions on captive formation, appraise and identify the ideal captive program structure for your organisation.

Why Marsh

Marsh is recognised as the world’s leading captive manager, having been ranked #1 globally for 16 consecutive years. In 2024, Marsh Captive Solutions managed nearly 1,500 captives globally, almost 50% more than the next largest captive manager, and accounted for more than US$76 billion in premiums globally.

With deep expertise, extensive data insights and a rigorous, structured approach, Marsh’s Captive Feasibility Study can help your organisation make informed decisions on captive formation and design an optimal captive programme structure aligned to your business objectives.

Contact Marsh Asia today to schedule a data-driven Captive Feasibility Study and uncover the optimal captive structure for your business.

¹Business Insurance, 2025 Captive Managers and Domiciles Rankings + Directory