The evolving landscape of captive insurance: navigating trends and challenges in 2025

Nate Reznicek (pictured), president of Captives.Insure, gives his views on where the captive insurance market stands as we start March.

The captive insurance industry now stands at a pivotal juncture, shaped by unprecedented market disruptions, regulatory refinements and innovative approaches to risk management. 

Over the past decade, captive insurers have evolved from niche risk-financing tools to strategic assets for businesses seeking greater control over their insurance programmes. With the first quarter of 2025 nearly behind us, let’s look at what’s driving the sector’s transformation, discuss some emerging trends and explore how stakeholders can navigate the captive insurance waters to build resilience in an era of escalating volatility.

Brokers still the front line

As captives gain in popularity, brokers continue to take varied approaches to captive insurance. Many are now at least tangentially familiar with the concept, in large part due to the success of group captives over the past 20-plus years. Unfortunately for them, the group captive space is largely commoditised with few meaningful differences between the major players.  

Outside standard group offerings, the most common exposure a broker has to a captive insurance transaction is typically limited to ancillary experience with enterprise risk transactions. These experiences were not always positive, particularly if the shareholder got wrapped up in audits as a result of business activities of a captive manager/consultant. This knowledge gap is often evidenced by the unfortunately common misconception that the vast majority of captive transactions don’t have an “A Fund/B Fund” or that a “captive being an 831(b)” has anything at all to do with the general structure of the insurance company or risks being insured/reinsured.  

For brokers looking to make a serious run in the captive industry, I would highly recommend you consider enrolling in courses from the International Center for Captive Insurance Education (ICCIE). These are taught by veteran captive professionals, provide an excellent foundation of knowledge and offer the only recognised professional designations in the space.

Sophisticated brokerage firms continue to recognise the captive trend and continue to attribute sometimes significant resources towards the build-out and development of alternative risk transfer teams. These teams will often act both as internal subject matter experts (explaining the captive concept, possible structures, etc.) as well as interacting with captive underwriters to help facilitate the captive underwriting process – one that requires a distinctly different approach to be successful. There is likely to be a related influx of experienced talent into the market as M&A activity at larger brokerages makes these positions redundant and these individuals look to join more stable work environments. 

Insulated managers

Recent history has been relatively quiet for captive managers as the industry awaits word on the outcome of the backlog of cases that have been challenged by the IRS. M&A activity has slowed considerably as appetite for acquiring managers has softened in general, especially if the manager’s book of business is largely built upon enterprise risk captives that took the 831(b) election. As the scrutiny for the election still remains, we expect to continue to see managers look to diversify their books and expand into more “traditional” captive insurance arrangements. 

This expansion has, and will likely continue to, present friction for these management firms as many lack meaningful experience interacting with the traditional market and/or the underwriting complexities and requirements of non-enterprise risk policies. These firms are likely to toss their hat in the ring as interested parties of experienced broker alternative risk practitioners should they look for employment elsewhere as predicted.

There has been no change on the compliance front as captive managers continue to be able to operate in an environment where they are not yet required to hold even basic insurance licences or adhere to similar regulatory framework to determine competence/credibility. 

This low barrier for entry allows new firms to open their doors without any meaningful experience in the captive industry and invites problematic captive managers and promoters to close down shop and immediately hang a new shingle should they encounter trouble. Expect a significant influx of “new” captive management and consulting firms should the industry be successful in having the recent IRS reporting rules on 831(b) overturned via the Congressional Review Act (these rules are problematic for a number of reasons, but that’s a topic for another day).  

Brokers and prospective captive owners will be wise to ask prospective captive “consultants” hard questions surrounding their captive experience. Pay special attention to promoters that have/had a focus on investment management, life insurance sales, tax planning, captive hedging, creating “profit centres”, and other fields that were previously breeding grounds for tax abuse and problematic transactions.

Captives and traditional insurers: balancing innovation and tradition

The traditional insurance market isn’t oblivious to the growth of the captive market as legacy carriers look to expand offerings into the alternative risk transfer space and new capacity providers are formed or enter the space for the first time. Emerging carrier engagement strategies reveal an industry grappling with its dual identity. On one hand, traditional insurers recognise captives’ value in retaining profitable accounts and stabilising loss ratios. On the other, many insurers still struggle with a traditional underwriting mindset that falls short of accounting for the desire of the insured business to take significant risk in a transaction when making appetite decisions. 

As an example, it’s entirely understandable that an insurer may not want to take risk on a transaction in the traditional fashion, but (absent reputational risks, treaty exclusions, or other gating issues) it is not uncommon for the same underwriters to exclude this fact that the insured is willing to take significant, if not all, the risk in the proposed transaction.

Conversely, some carriers view captives as disruptive competitors, leading to contentious negotiations over terms and conditions. This tension underscores a fundamental reality: captive growth depends on aligning incentives for all parties. Progressive carriers are addressing this by developing captive-specific product suites and listening to market demand for risk sharing. Such innovations suggest a future where captives and traditional insurers operate as complementary pillars rather than adversarial forces. Although in its infancy, we’re starting to see this play out today.

Regulatory and compliance realities

The captive sector’s growth has inevitably attracted heightened regulatory scrutiny. Proposed amendments to the IRS’s 831(b) election rules, though still under debate, underscore policymakers’ efforts to curb abusive tax avoidance schemes masquerading as legitimate insurance companies. These rules, designed to provide the IRS with information to identify transactions they deem to have a high likelihood of tax abuse, are as helpful as they are problematic. It’s important that the industry does not forget that a large part of the reason we have seen a reduction in blatantly fraudulent transactions can be traced back to prior versions of these rules. 

The outright elimination of reporting obligations may be a welcome change to upstanding managers and captive owners but will undoubtedly open the door again for unscrupulous captive promoters to flood the market once again with abusive transactions. 

Growing and protecting a mature captive ecosystem

The captive insurance industry’s adolescence has ended. What some would say began as a tax optimisation tool has matured into a sophisticated risk-financing mechanism capable of stabilising organisations through unprecedented turbulence. Success in this new era demands more than actuarial/underwriting competence – it requires a willingness to reconcile innovation with pragmatism.

For brokers and captive managers, the imperative lies in education: demystifying captive structures for risk advisers while demonstrating tangible value beyond premium savings. Insurers must evolve from gatekeepers to collaborators, developing products that enhance, rather than inhibit, captive utility. 

Regulators face the delicate task of fostering innovation while safeguarding systemic stability – a balance achievable through agile frameworks updated in lockstep with market developments.

For potential captive owners, your due diligence may get significantly harder as you not only explore what is often a new concept but may now face a greater challenge determining the competency and qualifications of the professionals required to make the whole thing work.

As rates change, regulation remains a bit clouded, and climate change/geopolitical realignments redefine global risk landscapes, captives offer something increasingly rare in modern finance; a customisable solution that aligns stakeholder incentives while promoting long-term resilience.

The organisations that prosper will be those recognising captive insurance not only as a financial engineering tactic, but as a strategic capability deserving of C-suite prioritisation. In this environment, educational leadership matters as much as underwriting, and the continued growth of the captive industry requires collaboration and symbiotic partnerships rather than zero-sum competition.

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