[Watch and read] A year of captive innovation
In the third of our articles based on an online panel of experts on the topic of innovation, Captive International looks at the past year’s progress.
The captive insurance industry is no stranger to change, but the past year has seen a remarkable acceleration in innovation across various fronts. From the emergence of new markets and regulatory adaptations to the adoption of advanced technologies, industry leaders have been at the forefront, steering their organisations and jurisdictions through this dynamic landscape.
In a panel discussion hosted by Captive International, experts shared their insights on the most impactful innovations over the past year and their predictions for future developments in the captive ecosystem. Their perspectives shed light on how the industry is evolving and where it might be headed.
The rise of emerging markets
Jesse Olsen, chief operating officer of Helio Risk, highlighted the growing opportunities in emerging markets, particularly in the cannabis and psilocybin industries. These sectors have gained traction, especially in the Western US, where there is a noticeable disunity between federal and state regulations. This regulatory gap has created a space for captive insurance to step in and support these industries, which are otherwise struggling to obtain traditional insurance coverage.
“Cannabis has become a well-known element in the captive insurance space,” said Olsen. “But psilocybin is relatively new and is following a trajectory similar to cannabis about a decade ago.”
As more states entertain or pass legislation to legalise psilocybin, captives are likely to play an increasingly central role in making these industries viable by providing the necessary insurance solutions to keep doors open, develop products, and retail them.
Mark Weideman, captive director of the Tennessee Department of Commerce and Insurance, noted that in the past year there has been significant diversification in the types of captives being formed. In Tennessee, there has been a notable increase in cell structures, with companies forming large cell structures to provide collateralised reinsurance for traditional business lines such as property, workers’ compensation, and general liability.
“We’ve been seeing a large cell structure uptick in Tennessee, with companies looking to form these structures to provide more flexibility in their risk management strategies,” Weideman explained. This trend is not limited to large corporations—mid-market and smaller companies are increasingly entering the captive insurance space, finding innovative ways to manage their risks through captive structures.
Stephen Taylor, director of the Bureau of Captive and Financial Insurance Products at the Delaware Department of Insurance, shared insights into the regulatory innovations that have taken place in his jurisdiction. Delaware recently launched the first instalment of Delaware Captives 2.0, an initiative aimed at improving the regulatory environment for captives.
“We streamlined the process for licensing applications and business plan changes, recalibrated capital requirements, and expanded the forms of capital and surplus that can be held,” Taylor said. These changes have made it easier for captives to operate in Delaware, reducing administrative burdens and fostering innovation.
Additionally, Delaware has introduced a new hybrid cell structure that combines incorporated cells and series, offering greater flexibility for captives.
Taylor noted a growing interest in captives for talent retention and employee benefits. “We’re seeing captives being used to provide innovative employee benefits, such as customised health insurance, wellness programmes, and retirement plans, which are helping companies attract and retain talent,” he said.
“Large organisations are beginning to think differently about risk.” Anne Marie Towle, Hylant
Globalisation and increased competition
Kevin Mead, chief executive of the Vermont Captive Insurance Association (VCIA), took a broader view, discussing the global trends that are reshaping the captive insurance industry. “We’re rapidly becoming a mainstream global industry,” Mead observed.
He pointed out that countries such as Italy and France have established and are now growing their captive regimes, and Lloyd’s of London is considering moving into the captives space for UK companies.
“This shift indicates that captives have gone from being a niche, often overlooked sector to becoming fundamentally mainstream,” Mead said. He emphasised that this increased competition is beneficial for the industry as a whole, as it drives innovation and compels service providers and domiciles to continuously improve their offerings.
As the panellists looked to the future, several key themes emerged. Mead suggested that the industry needs to consider how it can better serve global companies by developing more integrated services that transcend the segmented regulatory frameworks currently in place.
“There’s scope for cooperation between domiciles to drive stronger and more integrated services for global entities that are looking for a global solution,” he said.
“We’re rapidly becoming a mainstream global industry.” Kevin Mead, VCIA
Olsen echoed this sentiment, focusing on the need for captive managers to evolve. “There’s a lot of opportunity in the captive management space to better integrate risk consulting as part of the service offering,” he stated. He sees a future where captive managers are not just handling financial statements but are also deeply involved in broader risk management and risk finance strategies for their clients.
Anne Marie Towle, chief executive of Global Captive Solutions at Hylant, emphasised the importance of continuous adaptation and innovation. “Change is constant, as we all know, and we have to adapt and continue to adapt,” Towle said.
She highlighted the potential for growth in areas such as family offices, where large organisations are beginning to think differently about risk and how captives can play a role in managing those risks.
Taylor pointed to the potential for captives to explore innovative financing and investment strategies. “Captives may look at alternative investment vehicles, such as private equity, hedge funds, or real estate, to optimise their capital structure and asset management,” he suggested. However, he cautioned, such innovations would require a careful balance between innovation and regulatory prudence.
“There’s a great point to be made about harmonisation of captive regulation.” Stephen Taylor, Delaware DOI
The panellists agreed that the regulatory environment would continue to play a crucial role in the evolution of the captive insurance industry. Weideman stressed the importance of maintaining open communication and collaboration among regulators to ensure that the industry can innovate while still adhering to sound regulatory practices.
“Improving our regulatory frameworks is important, and as regulators we do a pretty good job of communicating between ourselves,” Weideman noted.
Taylor added that there is potential for greater harmonisation of captive regulation across domiciles, which could facilitate more cross-border cooperation and streamline operations for global companies. “There’s a great point to be made about harmonisation of captive regulation, and it’s could benefit the industry as a whole,” he said.
The captive insurance industry is clearly on a path of rapid evolution, driven by a combination of emerging markets, regulatory innovations, and the increasing globalisation of the industry. As captives become more mainstream, the competition will intensify, pushing service providers and domiciles to continuously innovate and improve their offerings. The insights shared by the panellists underscore the dynamic nature of the industry and the many opportunities for growth and innovation in the years ahead.
Whether through the exploration of new markets such as cannabis and psilocybin, the adoption of advanced regulatory frameworks, or the pursuit of global solutions for multinational companies, the captive insurance industry is poised for significant advancements.
As Mead put it: “Competition is good. It causes us all to re-evaluate how we do what we do and make sure that we are relevant for those consumers.”
Click here to read Captive International's US Focus 2024 publication.
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