10 October 2022ArticleAnalysis

Remaining agile in a fluctuating insurance landscape

“We continue to see more small and medium-sized businesses demonstrating a strong interest in captives.”

Matt Gravelin, Brown & Brown

In many respects, the world is evolving at a rapid pace, creating challenges and opportunities in the insurance industry. A number of the prevailing themes include disruptions caused by the advancement in technology, evolving demographics of employee and consumer expectations, increasing costs and competitive pressures, the intensifying tax and regulatory environment, expansion in emerging markets, increasing significance of environmental sustainability, and enduring economic uncertainty.The world is essentially changing faster than the traditional insurance market can keep up, which is forcing companies to look for ways to remain competitive and less reliant on traditional markets. A captive insurance company can provide the effective long-term strategic solution needed to manage the cost of risk.A few of the top concerns facing insureds now are future premium increases, capacity limitations, exclusions, and managing exposures, particularly related to D&O and cyber risks. Businesses in virtually all industries are experiencing a shift in their risk profile and the traditional insurance market has embraced this with significant rate increases, enhanced exclusions and reduced capacity.Although this trend has been witnessed across most lines of business in recent years, there are signs of this easing in 2022 within the traditional casualty lines. However, the market continues to face prolonged challenges within D&O, cyber and property lines, along with certain umbrella and excess layers. It is likely that these challenges will continue.Total premium growth continues with commercial lines increasing more significantly than personal lines. The interest in forming a captive has also spiked, which is typical during hard market conditions. The number of licensed captives is reported to have increased by 111 (3.67 percent) during 2021 across 30 domiciles within the US, with eight of the 10 largest domiciles reporting growth. This brings the total number of domestic captives to 3,133, which at the end of 2021 represents roughly 52.4 percent of the total number of captives worldwide, demonstrating how captives continue to be a desired risk management tool during unsettled times.

Why a captive?

As these trends persist, businesses should be compelled to back their own risk to provide more stability and possible financial benefit by either retaining more risk at the insured level, or financing it in a captive owned by the insured, or a combination of both. This might be easier said than done, as risk managers may need to petition executive leadership to win capital allocations necessary to form a captive.This will require justification for why devoting capital to a captive subsidiary could provide a compelling benefit over using those resources for other business development options. In addition to considering the financial cost or benefit of financing risk in a captive, it will be important to emphasise the less obvious long-term benefits that strengthen the captive insurance case. Non-financial benefits might provide the extra incentive required to gain executive backing.This provides a great opportunity for risk managers to focus on the unique risks of their business operations, identify pain points, and build their best use case. If done properly, it can be used as an opportunity to build unity with how risk is perceived and managed across the organisation and will promote agility in determining the appropriate risk tolerance and appetite based on market behaviour, allowing management to better control their risk-financing destiny.Nearly all the largest corporations in the US have a captive as part of their organisational structure, while many small and medium-sized entities do not. That tide has been changing as we continue to see more small and medium-sized businesses demonstrating a strong interest in captives. In many cases, the financial benefit is not yet there, for a variety of reasons.

“Taking control out of the commercial market by retaining risk will lead to positive results.”

However, the interest toward establishing a captive in these cases is still fervent, which demonstrates companies are willing to absorb some added cost to achieve possible long-term benefit. The following are key non-financial benefits we continue to see influencing the value proposition for a captive.

  • Flexibility: ability to adapt to market fluctuations
  • Control: the interests of the insurer and the insured are aligned
  • Stability: provides more consistent cost of risk
  • Claims management: can lead to better prevention and favourable claim results
  • Data analytics: access to more specific information and better budgeting
  • Tailored policies: ability to design coverage to a unique risk profile
  • Leverage: access to reinsurance and ability to place pressure back on the market
  • Speed: ability to act faster than the traditional market
  • Investment yield: retained within organisation
  • Profit centre: captive is a vehicle for aligning risk with reward
  • Tax advantages: ability to accelerate deductions if captive qualifies as insurance

It is important to note that there can be disadvantages too, which is why it’s vital to engage competent service providers that are experts in their respective fields. These experts can help navigate disruption by taking a holistic approach.The following are common factors impacting the insurance market.


The advancement in technology has changed how organisations behave, and continues to drive innovation and the ability to access extensive volumes of information in real time. The insurtech model is being embraced to harvest efficiencies and improve operating results. The rapid evolution of technology will continue to impact the insurance industry, requiring entities to be proactive and nimble.Top technology trends in the insurance market can be broken down as follows:New modelling and personalised products
Artificial technology and automation
Advanced analytics and proactiveness
Insurtech partnerships
Mainstreaming blockchain


The COVID-19 pandemic has impacted nearly every aspect of our lives, bringing with it changes that are likely to endure for years. This has amplified the need for pandemic coverage, resulted in pandemic exclusions and is impacting certain employee benefits.The pandemic changed the remote nature of how business is conducted. There is more diversity in where people are located, and companies may have less control over the physical environment where people work. This is shifting the risk environment and is likely to create more uncertainty as insurers place less reliability on historical experience.


The geopolitical environment is altering the expectations of consumers and shareholders, leaving executives enforced to adapt. The role of environmental, social and corporate governance (ESG) issues is likely to impact the insurance space. ESG focus began in the EU, but this has shifted to the US where insurers are starting to factor ESG performance into underwriting decisions. This may create new risk for businesses and their directors, in the case where ESG initiatives are being oversold.The war in Ukraine continues to cause disruption across the world, which may eventually trickle down to the insurance industry. The war has already resulted in new sanctions, has impacted trade agreements, has created supply chain issues, and is causing emotional and financial disorder. How this continues to impact the insurance market is still to be determined.Taxes and increased regulations aimed at equalising the competitive advantage caused by the use of creative structuring for international businesses are also a factor. The work of the OECD and G20 nations to curb tax evasion, for example, will likely shift organisational structuring and the way business activities are conducted. These changes will eventually filter down to the insurance industry.Natural disasters caused by weather events are becoming more severe and more frequent. This is having a significant impact on the property market as these events become more difficult to predict.

Inflation/financial markets

Is the insurance industry facing a period of social inflation? Rising interest rates, tight housing market, financial hardships, supply chain issues, among others, all have a gradual effect on the insurance industry.There are many factors impacting the insurance landscape and managing these risks is becoming more challenging and unpredictable. The insurance industry experiences cycles and a captive can be a useful risk-financing tool to help navigate with less disruption.By design, captives are innovative and nimble structures that can respond to the unique exposures of its insureds and fluctuations in the marketplace. Having a captive structure in place could be leverage enough against market pressures, and taking control out of the commercial market by retaining risk will lead to positive results.