Making the most of a captive

Organisations seeking commercial insurance are experiencing higher premium rates and fewer coverage options, according to Doug Severs of Brown & Brown in Captive International’s 2023 US Focus edition.

In his article Severs points out that the impacts of the COVID-19 pandemic, Russia’s invasion of Ukraine, high inflation, supply chain interruption, and changing interest rates have been driving factors.

“Increases in the frequency and severity of natural disasters such as Hurricane Ian have also had a substantial impact on the insurance industry,” Severs said. “Commercial insurers are offering more restrictive coverage than before with exclusions for key perils such as wildfire or lost revenues due to viral outbreaks or pandemics.”

According to Severs, during 2022, total captives worldwide increased from 6,074 (2021) to 6,191 (2022); and the positive trend of captive formations has continued in 2023. In short, the continued hard insurance market has led to organisations looking for ways to lower their total cost of risk (TCOR). As a result, we have seen greater utilisation of existing captives and a sustained interest in new captive formations. Whereas captives were traditionally used to fill mostly primary layers of coverage, we are seeing more captives being utilised across insurance towers to fill gaps in coverage, add capacity, and provide premium relief.

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