29 April 2019Analysis

Captives remain top alternative risk transfer vehicle: Marsh and RIMS report

Captive insurance companies continue to be the most popular alternative risk transfer solution in use, according to Marsh's 2019 Excellent in Risk Management Report, published in collaboration with RIMS, the risk management society.

Of the risk managers surveyed, a substantial 78 percent of respondents said their company uses or has used captives as form of risk finance.

This was followed by 33 percent of respondents saying they use or have used structured risk programmes, 27 percent for risk retention groups, 26 percent for integrated risk programmes, 5 percent for parametric solutions and 4 percent for catastrophe bonds.

Despite a growing interest in an umber of alternative risk solutions such as structured risk programmes and parametric, Marsh said that many respondents remain unfamiliar with the concept and what they offer.

33 percent of risk professional respondents and 53 percent of the C-suite respondents said they need to learn more about alternative solutions before making a decision whether to use one. Marsh suggested data-driven modelling is therefore crucial as companies need to compare traditional insurance against alternative solutions to clearly understand the value each provides.

Improving the use of data and analytics was cited at the top priority for improving risk management capabilities (47 percent).

Furthermore, financing hard-to-insure exposures was the top benefit of alternative risk solutions cited by survey respondents (38 percent).

The report noted that captives can be a crucial component for companies interested in non-traditional solutions, largely due to their flexibility in accessing alternative risk capital.

Marsh added that is can be difficult for companies to access alternative risk solutions without using an insurance vehicle. Instead, many organisations use a special purpose captive to purchased tailored risk solutions, for example catastrophe bonds and integrated insurance products.

When asked if they plan to write additional coverage areas in their captives over the next two years, 52 percent of respondents said yes.

The report added that captives are increasingly being used to finance emerging risk such as wildfires, asbestos and cyber.