What is captive insurance?
A captive insurance company is a licensed insurer created and owned by an organisation to insure its own risks. Captive insurance gives businesses control over pricing, coverage design, and claims handling. It also captures underwriting profit and builds surplus that supports longer term financial planning.
While captives are formed in response to a hard market characterised by high rates and low competition among insurers, it has expanded as a strategic tool for organisations that want more control over their risk financing even in soft market conditions.
Why does captive insurance remain popular in a soft market?
As captives mature, organisations are increasingly using them as flexible platforms that deliver more than short term cost relief. The three benefits below show how captive insurance helps organisations manage volatility, capture financial upside, and solve placement challenges across market cycles:
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 as well as strategies to realise the following benefits:
Buffer against market instability
Captive insurance can offer multi-year, multi-line 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:
- Despite declining rates in cyber insurance, the severity and sophistication of ransomware attacks remain a significant concern for insurers, particularly around AI-related risks, physical cyber, and fraud. 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, and is expected to reach 12.5% in 2026, outpacing inflation by over six 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 as illustrated in two case studies:
1. How Marsh helped a multinational firm establish an employee benefits captive
A large multinational with more than 400,000 employees across 220 territories wanted greater control over employee benefits costs and protection.
Marsh conducted a program review and feasibility study which demonstrated that establishing a new captive would be an effective way to self insure employee benefits risks in selected markets. Marsh then supported the transition into the new captive structure, helped the client manage policies through the captive and provided access to proprietary accounting tools to monitor underwriting performance by class of business and location.
As a result, the client gained better visibility and control and a more efficient framework for managing employee benefits risk globally.
2. How cyber risk modelling helped a healthcare firm expand the use of its captive
A leading healthcare firm purchased commercial cyber insurance with a large deductible and was concerned that major cyber events could materially affect some subsidiaries under the existing retention structure.
Marsh Captive Solutions and Marsh Risk Analytics conducted cyber modelling to analyse the client’s exposure and evaluate alternative retention and limit structures within the captive. The analysis demonstrated how the captive could be used more effectively alongside commercial excess insurance, enabling the client to compare options and identify the most efficient structure.
Marsh’s modelling helped the client determine an appropriate retention level and provided quantitative support for setting an initial captive premium, giving the client a more informed and resilient approach to financing cyber risk.
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.
The number of Marsh-managed captive programs with alternative risk solutions increased 10% in 2025 according to our latest Captive Benchmarking Report. By creating capacity for complex and challenging risks, captive insurance enables organisations to build more resilient and comprehensive risk financing programs.
What to watch out for when setting up a captive insurance program
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 program. These include failure to comply with local regulatory requirements, inefficiencies in operating costs and risk retentions, and insufficient coverage of risks.
Why Marsh
Marsh is recognised as the world’s leading captive manager, having been ranked #1 globally for 17 consecutive years. In 2025, Marsh Captive Solutions managed nearly 1,500 captives globally, almost 50% more than the next largest captive manager, and accounted for more than US$79 billion in premiums globally.
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, and appraise and identify the ideal captive program structure for organisations.
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 program structure aligned to your business objectives.
Assess whether a captive insurance program makes sense for your business
Contact us for a Captive Feasibility Study review and we will recommend the next steps.