A hard market is driving how captives are used

Pro Group is keeping a watchful eye on the hard market’s impact on the captive sector – and how companies that own captives are adjusting their strategies to deal with it.

Speaking ahead of the annual CICA conference taking place March 5-7 in California, Renea Louie, chief operations officer of Pro Group, told Captive International that business owners are being forced to take reductions in coverage and increases in premiums with little control.

She said that she continues to see commercial markets increase exclusions, cancel coverages all together and entirely pull out of markets with no alternatives. Natural disaster events, more sophisticated and damaging cyber-attacks, nuclear verdicts, inflation, lack of access to reinsurance markets all contribute to today’s environment.

Louie commented that well run businesses can head these challenges off at the pass, adopting captive strategies as part of their overall risk management plan. Captives allow total control, flexibility and can adapt as conditions change. Where companies need better answers, captives are there to respond.

She said that the captive industry is bracing itself for the hard market to last for several more years and captives will provide innovative strategies that will provide lasting solutions for years to come, adding that even in times of transition to softer markets, those strategies using captives will be stronger than ever.

Louie also said that in her view the demand for captives has changed over the past year. “The pandemic exposed business to catastrophic and nearly immediate and long duration losses on many levels not previously contemplated,” she told Captive International.

This quickly propelled the C Suite to seek solutions – and captive solutions stand as strong as always, as a very viable solution to help them plan for the next global issue, in her view. As business learned their property insurance business interruption coverage excluded communicable disease and their claims were denied, this was a huge awakening on managing risk and purchasing insurance.

“This created a tsunami of demand for learning and understanding the power, control and role captive insurance can play,” said Louie. “Our industry was called to action, and we reacted ready to serve. So much so, the captive market has surged to the forefront as the obvious sophisticated, smart, flexible tool to smooth out and handle the variables in insurance and reinsurance for the long term.”

Louie stressed that when it comes to looking at domiciles what she tells her clients is to pay attention to the details, including regulator temperament for various types of coverage. Stability, knowledge of how their captive regulations work and the confidence in which they can process applications, business plan changes, and the like, timely are important. Those domiciles that have dedicated staff and supportive Commissioners for captives will prevail for the long run.

Looking forwards Louie said that the power of captives allows innovation, and new products are also tested in captives and then mature to commercial markets, one example being cyber.

“We have seen brokers embrace captives to a greater degree as well,” she said. “Moving into 2023 the level of professionals in the industry is increasing and emphasis on education, mentoring and best practices will be a must, to grow the industry to the next level intelligently and something we can all be proud of.

“The opportunities are endless in our industry if done correctly. If we embrace our next generation of professionals entering and learning the business of captives, the more success we will all have.”