Captives, ART help firms optimise balance between retained and transferred risk
Captives and alternative risk transfer structures are becoming increasingly important as companies confront risks that are evolving faster than traditional insurance solutions can respond, according to Simon Hunt, UK & Ireland CEO at HDI Global.
Key points:
Risks are more interconnected
Insurers must think outside silos
Cyber, AI biggest emerging risks
Hunt told FERMA Forum Today that organisations are using captives and ART to gain greater control over risk retention, capital allocation and earnings volatility, particularly as exposures become more interconnected and difficult to address through conventional insurance silos.
“We’re increasingly working alongside captives and looking at alternative risk transfer structures to help clients achieve their optimal balance sheet between what’s retained and what they can transfer off,” Hunt said. “I also think that helps them improve both their resilience and capital efficiency at the same time.”
The wider challenge, he said, is that risk itself is no longer experienced as a series of isolated events. Cyber, supply chain disruption, reputational damage and financial loss can emerge from the same incident and amplify one another.
“You take a cyber incident, for example, you can simultaneously create operational disruption, supply chain interruption, reputational damage and financial loss all at the same time,” Hunt said.
Increased globalisation, digitalisation and interconnected supply chains have created a more complex and increasingly systemic risk environment, he added.
Beyond insurance silos
That means insurers and risk managers can no longer afford to view exposures through traditional product categories alone.
“Traditional insurance still remains highly effective in certain parts, but the way organisations experience those risks is definitely evolving,” Hunt said.
Clients do not experience property, cyber or liability losses as neat individual categories, he argued. Instead, they experience the consequences across the business through disruption to operations, customers and reputation.
That is where captives can play a broader role. Hunt said the risk environment is changing on several fronts, creating situations where captives and ART structures can allow companies to retain emerging exposures while maintaining traditional insurance protection elsewhere.
They can help organisations “put something in place that is developing or is ahead of those traditional insurance policies”, he said.
“That’s a risk environment that is evolving quicker than we’ve possibly seen in the past.”
“Make sure that the governance and the oversight is developing as quickly as AI.”
Cyber and AI converge
Among emerging exposures, Hunt highlighted cyber and artificial intelligence as two areas demonstrating how quickly risks can converge.
Cyber increasingly cuts across technology, business interruption, supply chains and infrastructure, while AI brings together regulatory, governance and professional liability concerns.
“The big piece around AI is making sure that the governance and the oversight is developing as quickly as AI and ensuring that you’ve got really robust oversight,” Hunt said.
Human involvement remains essential, he added. “It needs to be a human within that loop and have that human element of oversight.”
Geopolitical instability and growing natural catastrophe exposures driven by climate volatility are also occupying more of risk managers’ attention, particularly as companies consider how best to mitigate and finance risks that may not fit neatly within established insurance solutions.
But Hunt said the common thread is that the individual risks may be familiar, but the way they collide is changing, and insurance structures will increasingly need to reflect that.
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