3 March 2021ArticleAnalysis

Value in uncertain times

The hard market was already upon us when the COVID-19 pandemic hit and now experts are predicting that the hard market will continue through 2021. As a result, more organisations are exploring formation of a captive insurance company or expansion of their existing captive.

As risk managers, chief financial officers and boards of directors see the benefits of captive insurance, they begin exploring the different structures, capacity, and coverages captives can provide Captive insurance was a valuable solution for dealing with unique risks pre-coronavirus and will be even more beneficial in a post-pandemic world. Pandemic risks may no longer be readily available in the commercial market and if they are, they will be expensive.

It is difficult to know whether the reinsurance markets will be interested in this type of coverage, so for companies seeking coverage, it may be limited to what layer can be placed within the captive.

The captive insurance market has always been very nimble, and this pandemic has not significantly interrupted operations. Most domicile regulatory infrastructures are well suited to operating remotely, and they have experienced very few interruptions.

Most are able to move forward with licensing and other operations. Early indicators show that active domiciles had a very strong start this year with some saying their activity level is reminiscent of the period after the 9/11 attacks. The primary question for many organisations at this time is whether forming a captive now is the best use of their capital, or whether it is better allocated elsewhere, especially as businesses look to recover from revenue losses and other results of the pandemic.

Many will be watching what happens with the proposed Pandemic Risk Insurance Act (PRIA) of 2020 introduced in Congress. PRIA would provide a federal backstop for business interruption and event cancellation losses.

They are also watching to see what comes out of the CIC Services v Internal Revenue Service case. The outcome could either enhance perceptions of the valid role of captives or further perpetuate misperceptions about the misuse of captives.

Fuelling talent development

As interest in captives formation and expansion increases, we continue to lose years of experience and knowledge due to retirements. Engaging the best and brightest talent to help advance the industry is vital.

The Captive Insurance Companies Association (CICA) is leading the development of programmes for our members by providing career support and development opportunities for young professionals. These programmes have been positively received and participation in the programmes is increasing.

Attracting a robust talent pool and providing the career development resources to help young professionals grow their captive insurance careers continues to be a vital issue. CICA actively promotes the dynamic nature of the captives industry and the challenging and interesting careers it offers.

We are offering more ways for young professionals and students to get involved and providing more career development resources to help them grow their captive insurance careers.

We are proud of the new programmes and initiatives we have put forward. We have received overwhelming support from our members and are excited to report increasing participation and new opportunities. This is reassuring and we are grateful to the many member volunteers whose work is vital to the success of these programmes.

Our NEXTGen Committee has been focused on raising awareness of the captives industry with future young professionals and providing networking and career-building opportunities for today’s young professionals.

Our Amplify Women Committee is connecting women through ongoing communication and networking and creating visibility for today’s women captive insurance leaders and role models.

By creating awareness of the diversity of skills and experiences the captive insurance industry needs we hope to engage a robust pool of talent interested in the opportunities, benefits and mobility the sector provides. We hope that this group will become our best advocates when it comes to spreading the word about the exciting professional opportunities the captive insurance industry offers.

What the rest of the year will bring is unknown, but we know the captives industry will remain dynamic, with new opportunities and talent development. Our hope is that we will all move forward with a new normal until a vaccine against COVID-19 is available to all.

Until then, the captive insurance industry will continue to provide solutions in these uncharted waters.