AI, geopolitics and the future of captives: a new strategic era for the insurance industry

In the second of two articles based on an online panel discussion, Captive International examines myriad new factors affecting the evolution of captives.

As the world navigates a rapidly evolving landscape of emerging technologies, geopolitical uncertainty and climate volatility, the role of captive insurance is undergoing a profound transformation. No longer confined to simple risk financing, captives are fast becoming agile strategic assets, enabling businesses to stay resilient in the face of mounting complexity.

In a recent panel discussion hosted by Captive International, four industry leaders – Brittany Nevins, captive insurance economic development director with the State of Vermont; Rob Walling, principal and consulting actuary at Pinnacle Actuarial Resources; Nate Reznicek, president of Captives.insure; and Nancy Gray, regional managing director for Aon – shared their insights on the evolving role of captives. Their dialogue revealed both excitement and caution as the industry embraces transformative forces such as artificial intelligence (AI), geopolitical fragmentation and expanded strategic application of captives.

AI’s disruptive potential in the captive sector

Artificial intelligence has captured headlines, but in captive insurance, it is already reshaping core functions.

“The bottom line truth,” said Rob Walling, “is that for companies leaning into technology, AI is changing everything – from extracting data from unformatted PDFs to deploying advanced underwriting systems and managing attorney networks for claims.”

AI is being used in pricing models, predictive analytics and even in selecting preferred vendors – functions previously dominated by traditional insurers. Captives, Walling noted, are now using machine learning and large language models for fraud detection and efficiency enhancements that were once the domain of insurance giants such as Liberty Mutual or CNA.

From a regulatory perspective, Nevins acknowledged Vermont's role in supporting these technological shifts, while staying grounded in regulation and oversight.

"Captives can also provide trade credit and political risk coverages – areas often excluded from standard markets."

“We’re not the trendsetters in AI – that’s driven by the service providers,” she said. “Our job as a domicile is to adapt and support the industry through regulatory stability and awareness of workforce changes.”

Nevins raised critical questions around workforce impacts. “AI can do the maths, it can do the modelling,” she explained, “but can it understand the risks? Can it foresee the consequences? That’s something we risk losing if we remove human oversight.”

Gray echoed the growing reliance on data-driven analysis: “AI is transforming how we do business, particularly in underwriting and claims. We’re now able to use AI to understand insurance coverage embedded in a policy, as well as assess risk with greater precision. It’s not a future concept – it’s already here.”

But along with opportunities come new exposures. Reznicek warned that with AI comes a different class of risk:

“With every emerging technology comes emerging risk. We’ve seen examples of AI chatbots behaving unpredictably or reflecting unintended biases. Captives must monitor not just the benefits of AI, but also the hidden liabilities that could arise from relying on systems that aren’t fully understood.”

"Captive insurance is uniquely positioned to provide stability during these volatile times"

Captives in a geopolitically fragmented world

Amid rising tensions, from trade sanctions to infrastructure attacks, captives are being called upon to do more than ever before.

“Captive insurance is uniquely positioned to provide stability during these volatile times,” said Nevins. “Organisations that take resilience planning seriously – those that proactively mitigate risk – will benefit most. The stability of the captive itself becomes a key strategic asset.”

Nevins also highlighted the importance of domicile-specific factors when choosing where to licence a captive: “Don’t just look at a region’s geopolitical stability – consider the specific domicile’s leadership, regulatory infrastructure and ability to support innovation. A stable and responsive domicile matters more now than ever.”

Reznicek added depth to the conversation by pointing out that geopolitical risk is no longer just a boardroom concern – it’s a frontline issue for insurers. “We’ve seen an increase in political violence losses and sanctions. Captives will need to integrate tools like dynamic sanctions compliance engines to ensure regulatory adherence,” he said. “They can also provide trade credit and political risk coverages – areas often excluded from standard markets.”

Reznicek also advocated for multi-domicile strategies, allowing captives to pivot in response to shifting political climates.

Walling gave compelling real-world examples of how captives are reacting with creativity: “We’re seeing everything from Subway using captives to hedge tomato prices to parametric coverages for foreign exchange risk. Captives are covering natural gas disruptions in Europe and even providing workers’ compensation for aid workers in Gaza.

“The next phone call is always the most interesting,” he added, “because so many captives are now solving very specific, very novel geopolitical problems.”

"Captives are often underutilised simply because leadership doesn’t fully understand them"

From risk financing to strategic engine

Beyond simply managing risk, captives are becoming central to business strategy, operations and innovation.

“Captives are no longer just about risk financing,” said Walling. “Renewable energy firms are using captives to improve financing terms for wind and solar projects. Property managers are using them to offer tenant insurance and pet liability cover – turning captives into profit centres.”

Gray also noted the shift from single-risk captives to more comprehensive risk management tools: “Traditionally, captives responded to hard markets. But now we’re seeing clients look at their captives holistically, asking: ‘What else can this do for me?’ Whether it's customer risk, supplier risk or employee risk, there’s huge untapped potential.”

Meanwhile, Reznicek pointed to a democratiation of the captive model: “The threshold for participation is falling. We’re seeing mid-sized firms and SMEs entering the captive space and large organisations are taking on more risk in the excess layers where they feel they can control outcomes.”

As access widens, captives are also expected to align more closely with operating company data and strategic goals.

“We’re heading into a decade where climate, AI and geopolitical risks will stress every part of a business. Captives will be central to shaping enterprise strategy, sustainability and long-term growth,” he said.

Nevins, however, offered a word of caution: “We must remain grounded. Captives should still be formed around a legitimate insurance need. If we drift too far into commercial models, we risk undermining the credibility of the captive industry.”

Building the captive of the future

As the discussion closed, panellists were asked to envision a future-ready captive. The responses were diverse – but aligned in vision.

Reznicek advocated for adaptive captives with built-in AI governance, climate-aware underwriting and geopolitical resilience baked into their corporate structure.

“Captives must have flexibility to pivot, whether in terms of domicile, regulatory framework or risk appetite. They’ll also need to integrate high-quality data to redefine how risk is understood and owned.”

Nevins emphasised that innovation requires collaboration: “Every captive is different. Our role in Vermont is to ensure collaboration between service providers and regulators, building captives that are stable, adaptable and bespoke to their parent organisations.”

Gray pushed for education and internal awareness: “Captives are often underutilised simply because leadership doesn’t fully understand them. A future-ready captive must be well-integrated into the strategic planning of the organisation – and regularly evaluated for untapped opportunities.”

Walling closed with a reminder to pair boldness with caution: “Data will be fundamental and agility essential. But as we innovate, we must ask: ‘Is this the early bird getting the worm or the second mouse getting the cheese?’ Not every innovation will be safe. Risk tolerance must be matched with foresight.”

Conclusion: a strategic renaissance

As the panellists made clear, captives are no longer passive insurance vehicles. They are dynamic, responsive instruments that will help businesses weather storms – both literal and metaphorical.

From AI-powered underwriting to parametric geopolitical hedges, from tenant liability programmes to ESG-aligned surplus strategies, the captives of the future will do far more than manage risk. They will define resilience itself.

“Captives are one of the most flexible tools we have,” said Reznicek. “If we build them right, they won’t just support business strategy – they will be business strategy.”

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