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Captive Insurance

As the world’s largest captive manager, Marsh offers a comprehensive approach to innovative captive solutions, helping organisations of all sizes navigate complex global risks.

Facing higher insurance rates, a lack of capacity, and more stringent terms and conditions, many leaders are exploring alternative ways to finance their risk. One of the most popular is through a captive insurance company.

A captive can be a powerful tool for your organisation to take complete control of its risk while gaining greater financial flexibility and protection. In addition, surpluses generated can potentially be used to fund strategic investments across your operations.

At Marsh, we can help your organisation create a captive program that aligns with your strategic and financial goals. By combining our expertise with industry-leading analytics, we’ll assess your needs, make recommendations, and quantify the advantages that captive insurance can offer your organisation today and in the future.

One-in-four captives worldwide are managed by Marsh. More captive owners choose us than any other captive manager – so you can be confident that you have the experience, expertise, and resources needed to manage risk on your own terms and maximise your captive’s performance. 

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Captive insurance is a risk financing mechanism in which a company insures itself against future losses. In a captive insurance arrangement, the insured brings its risk in-house by creating a licensed company that provides insurance to its parent organisation and/or affiliates.

By forming its own insurance company to protect against its unique business risks, a company can manage difficult-to-insure risk exposures, cover gaps in its risk management program, and capture profitable premium that would otherwise be paid to commercial insurers. A captive can create value through financial, strategic, and operational benefits. 

Captives are created to enhance a business’s ability to manage the retentions and deductibles associated with traditional risk transfer programs. Typically, a company will select service providers, including a captive manager such as Marsh, who can support the creation, implementation, and day-to-day operation of the program.

Similar to traditional insurance programs, a captive issues policies, processes claims, and follows all applicable regulations. However, the key difference is that a captive gives its parent company the option to retain or distribute the profits across the organisation, whereas a traditional insurance company retains those profits.

By placing a captive at the core of your organisation’s risk management program, you can achieve a reduced total cost of risk, stabilise risk capacity, and gain access to reinsurance.

Other potential benefits unique to captives include:

  • Better approach to funding for future catastrophic losses such as cyber, terrorism, and product liability.
  • Coverage for unique risks that may be unavailable in a traditional insurance arrangement.
  • Potential to build capital and surplus, and the ability to fund insurance claims, by paying and setting aside premium payments and underwriting investments to cover losses.
  • Ability to capture underwriting and performance management data to build a statistical base, improving the ability to secure coverage with insurers at acceptable terms and pricing.

A captive insurance program can help your organisation reduce traditional and emerging risk management pain points. And, by achieving a greater control of risk and reduced costs, your business can enhance your overall economic security and profitability.

Although companies across all industries can enjoy the potential benefits of a captive, typically those who do create their own captive insurance program share the following characteristics:

  • Risk exposures that are difficult to insure or uninsurable in the commercial environment.
  • A strategic approach to managing risk, exposures, and cost of risk rather than purchasing insurance at the lowest price.
  • A commitment to improving their risk profile.

With several unique structures available to your organisation, you can customise your captive insurance program and coverage to match your unique risk exposures and strategic initiatives.

For business leaders looking to create their own captive insurance program, there are several structure options.

  • Single parent captive: An organisation creates its own insurance company to insure only its own business and its employees or those of a controlled (but unaffiliated) business, such as a management contract. This model is ideal for larger companies that need additional discretion, confidentiality, and/or complete risk control ownership. Single parent captives represent the largest proportion of captive insurance programs at approximately 85%.
  • Cell captives: Also known as rent-a-cell facilities, protected cell captives (PCC), and segregated cell captives, this type of program is sponsored by a captive insurance company so that business owners don’t have to create their own. This allows a business to obtain the benefits of a captive insurance company without the upfront costs, capital investment, or maintenance associated with forming and managing an owned captive.

Cell captives are now seeing significant growth because they are faster, less expensive, and simpler to enter. They provide one or two lines of coverage to those who need to wall off different risks in separate cells.

  • Risk retention group (RRG): RRGs are only available within the US. Businesses with similar insurance needs will create and own a liability insurance company to pool risk. This structure is useful for potentially costly liabilities such as automotive risks related to trucking and transportation or medical malpractice. However, it is not applicable for first-party risks such as property or workers’ compensation.
  • Group captives: Ownership of this captive program is limited to only the insureds. The captive exists primarily to provide greater long-term cost stability than the traditional market allows.

With the option to enter any of these structures, no matter what industry you are in, you could potentially achieve improved risk management by building a captive insurance program of your own.

Once a captive is up and running, custom reporting and benchmarking against peers can provide insight into your program within the context of your industry, company size, and/or region.

Benchmarking will help to answer important questions such as:

  • Is the captive aligned with accelerating our corporate objectives?
  • How are my peers using their captives for certain risks?
  • How can our captive respond to emerging risks?

One-in-four captives worldwide are managed by Marsh. We can provide insights that enable you to improve captive efficiency, identify areas of potential coverage, and provide data-backed recommendations to your C-suite.

Interest in captive insurance has rapidly grown as a result of the challenging commercial insurance market in recent years and pandemic impacts of the past many months.

Now, following a year of economic uncertainty and dynamic market conditions, organisations around the world are increasingly looking towards captives as a means of managing high-severity risks and gaining enhanced flexibility and more control over their total cost of risk. Currently, it is estimated that there are more than 6,000 captives worldwide, with formations expected to remain high into 2022.

Captives can be used to insure both traditional risks as well as emerging risks. Major lines of coverage include all-risk property, casualty, automotive liability, workers’ compensation, general liability, and products liability to name a few.

Emerging risks showing rapid growth in recent years include medical stop loss, voluntary benefits, cyber liability, and directors and officers liability. In this report, we also highlight the increase in third-party risks. These risks, in combination with traditional risks, are helping drive the creation of protected cell captives which account for 1 in 4 of our new formations. For details, please see the 2023 Captive Landscape Report: Captive insurer growth continues as advantages pique interest.

Although captive insurance and self-insurance are both types of risk financing mechanisms, they do vary.

Self-insurance is a formalised way of retaining all types of insurance risk. Rather than transferring risk to a third-party commercial insurance company, a self-insuring firm sets aside money to fund future losses.

Similar to self-insurance, captive insurance is a risk financing mechanism in which a company insures itself against future losses. However, in a captive insurance arrangement, the insured creates a more formal arrangement for protecting against its unique business risks by creating its own insurance company.

By working with an experienced captive manager, your organisation can achieve potential benefits unique to a captive insurance program, including better protection against catastrophic losses and coverage for risks that may be unavailable in a traditional insurance arrangement.

Although captive insurance programs come with many potential benefits, there are some important considerations that may factor into your business’s decision when it comes to creating one:

  • Capital commitments: A parent company must contribute the capital required to support the captive’s business plan as determined by the insurance regulator in the selected domicile. Although these funds remain within the parent’s consolidated group, they may not realise the same return as they would have if invested in the parent’s operations.
  • Operating cost: Your business should account for any start-up and annual operating expenses, such as a feasibility study and ongoing captive management.
  • Time commitment: The parent company’s management team will need to devote time to the captive. Creating a captive is not a short-term initiative used to achieve an immediate goal. It's a long-term commitment to an organisational risk management strategy.

By allocating the proper resources to your captive, your organisation will be positioned to gradually achieve better control over claims and loss control efforts, as well as lower operating costs compared to commercial insurance.

With specialised expertise and global experience, the captive team at Marsh can work with you to create a comprehensive solution tailored to your organisation's unique risk exposures and insurance needs. Leveraging industry-best data analytics and benchmarking, we'll help you manage risk on your own terms and gain more control of your company's total cost of risk.

A domicile is the location where a captive insurer is licensed to do business. There are more than 70 captive domiciles around the world – but don’t let that number overwhelm you. Each and every one can be grouped into two categories: onshore or offshore. An onshore domicile is located within a major country or region, such as the US or the EU. An offshore domicile is located outside a major country and includes ones such as Bermuda, the Cayman Islands, Guernsey, and the Isle of Man.

How do you decide which domicile is right for you? Based on your unique organisational needs, your captive manager will work with you to determine what domicile makes sense to start with and whether any changes should be made over time.

Our professionals in every domicile can help guide you through the life cycle of a captive – from feasibility through optimisation.

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Andre Kyburz

Alternative Risk Transfer Solutions Leader, Marsh Advisory

David Ntow

David Ntow

Managing Principal, Alternative Risk Solutions, Marsh Advisory Pacific