Captive insurance growth spurred by hard market
The captive insurance market has seen significant growth in recent years, largely driven by the persistent hard market in the traditional insurance sector.
That was one of the conclusions of a panel discussion held at the annual CICA conference, taking place this week in Tucson, Arizona. The panellists agreed that businesses are increasingly exploring captives as a viable alternative to conventional insurance due to rising premiums and tighter underwriting standards.
Nick Hentges, chief executive of Captive Resources, noted the trend: “We've been in a relatively hard market, especially for liability insurance. This has certainly pushed more companies to explore captives as a strategic risk management tool.”
However, Robert Pettit, area senior vice president at Gallagher, emphasised the importance of a long-term approach when considering captives. “As brokers, we can quickly determine whether a client is looking for the cheapest option or true value,” he explained. “Captives aren't about cutting costs upfront. Instead, they offer ownership and control, making them an actual investment rather than just another premium payment. The goal is to drive the net cost of insurance down over time.”
This notion was reinforced by Steve Norton, executive vice president & chairman, captive risk practice at Marsh McLennan Agency. “Captives differentiate themselves by offering businesses a way to turn their insurance spend into an asset,” he said. “If a CFO realises they can get $100,000 back in dividends from their captive, they quickly see the financial advantage over simply paying traditional premiums.”
The hard market has undeniably increased interest in captives. "Three years ago, my team was just three people," Norton revealed. "Now, we have ten, and we’re still just keeping up with demand. We’re seeing significant growth in both group and single-parent captives."
Anne Marie Towle, chief executive of Global Risk & Captive Solutions at Hylant, agreed: “Many companies that previously never considered a captive are now exploring their options. While captives aren't suitable for everyone, they offer a compelling solution for those with substantial volume or unique risks that are difficult to place in the commercial market.”
Despite the increasing interest, industry leaders caution against rushing into captives without proper understanding. “We often get calls from business owners saying, ‘My friend has a captive, I want one too. How quickly can you set it up?’ That’s not how it works,” Towle stated. “It’s essential to step back and assess the company’s risk appetite, risk retention strategy, and long-term goals.”
Pettit agreed, explaining that captives require an initial investment and commitment. “This isn’t cheap insurance. It may be more expensive initially, but over time, businesses can outperform the traditional market by taking a disciplined approach to risk management.”
Norton added that educating prospects is a key part of the process. “I probably unsell captives as much as I sell them. If a company spends only $50,000 on traditional insurance, a captive likely isn’t a good fit due to setup costs and capital requirements. It’s about finding the right structure for the right company.”
Despite being competitors, captive insurance professionals share a sense of camaraderie. “We may compete, but ultimately, we all benefit from a well-educated market,” Hentges said. “It’s about raising awareness and helping businesses make informed decisions.”
Towle highlighted the innovation within the industry. “I love the problem-solving aspect of captives. It’s not just about insurance; it’s about creating tailored solutions and mentoring the next generation of professionals.”
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