Captives are innovating to better manage property risk
First party risk is not often the first line of coverage people consider when assembling a captive programme, attendees at the Vermont Captive Insurance Association’s 2024 annual conference have heard.
However, recent dramatic changes in the property insurance market have driven alternative approaches and structures in reaction to pricing and capacity constraints, with insureds looking to captives to cope with the changing commercial insurance landscape.
Christine Brown, director of Captive Insurance Captive Insurance Division in the State of Vermont’s Department of Financial Regulation, Derrick Easton, head of alternative risk transfer solutions, Americas at WTW, and Ray Rocchio, executive vice president at Keystone Risk Partners, looked at property and captives in Vermont, and discussed some of the key trends.
Property now totals around 9% of total gross written premium in Vermont, with premium volume totalling around 2023 $2.6 billion. There are now 230 captives and cells providing property coverage in Vermont.
The property is, however, facing several driving factors, which include increased cost, limited capacity, property values / inflation, and increased losses.
Property is, by nature, prone to volatility & magnitude of loss, the panel heard, and assessing exposure is complicated by inadequate evaluation. In addition, cat modelling results can vary significantly, there can be inadequate valued property schedules, along with limited options for risk sharing.
The panel acknowledged the increased use of CAT modelling by firms like RMS, AIR and Eqecat, with some of the perils being looked at now include hurricane, flood, earthquake, winter storm, cyber, terrorism, convective storm. However, the panel added that it is important to understand the nature & limitations of modelling – models are not infallible.
As a result, the panel stressed that it is important to structure a property captive as well as possible – remember that they can have a long-term lifespan and that claims can be unexpected.
Finally, the panel pointed out the role of parametric insurance. It was stressed that property insurance can be imperfect, as it has ‘basis risk’ - a lack of alignment between the loss and how the policy responds.
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