EY: evolving insurance market boosts captives
External forces are reshaping the insurance industry and changing customer bases are the most powerful impetus for innovation, growth and increased competition from non-traditional players, according to a new report from EY.
EY’s 2024 Global Insurance Outlook points out that captive insurers are increasingly competitive at the moment. According to the report if insurers don’t deliver what they want — precisely when, where and how they want it — customers will take their business elsewhere, including to more trusted brands now entering the insurance market.
The report says that: “This shifting balance of power helps explain why embedded insurance and ecosystem plays are gaining traction, and why captive insurers continue to grow at impressive rates. Designed to satisfy individual customer needs at scale, these business models point the way forward to the future.”
EY added that with a hard market continuing in commercial insurance, captives have become a fixture on the industry landscape. Up until a few years ago, captives were rightly considered to be part of an alternative risk transfer market. That is no longer the case. Nearly every Fortune 500 firm owns and operates its own captive insurer. According to EY captives now represent nearly 25% of the overall commercial insurance market, having diverted hundreds of billions of dollars in premiums from traditional channels in the last decade. The European captive market is also growing, thanks to a friendly legislative and regulatory environment in multiple jurisdictions.
“Captives have grown because companies weren’t finding what they wanted on the open market,” the EY report said. “They came to believe they could devise more effective risk solutions in more direct alignment with their needs than could traditional carriers. Their outperformance on key metrics confirms they were right.
“Superior combined ratios have not only led to remarkable growth in captives’ retained earnings and surplus, but also translated into billions of dollars in savings for captive owners. As a result, more companies are more comfortable putting more risk on their balance sheets and keeping it there. Super captives are now capable of assuming huge amounts of risk, for example by covering their own supplier networks. They’ve matured their use of reinsurance to reduce portfolio risks and volatility. And they’re well positioned to build out ecosystem platforms and unique forms of embedded insurance.”
To get a copy of the report contact EY.
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