The captive insurance market: a glimpse into 2025

Anne Marie Towle of Hylant Global Captive Solutions provided Captive International with a guide to some of the factors that have affected captives this year—and what might be on the horizon.

As the year 2024 draws to a close, the captive insurance market is experiencing unprecedented changes driven by a confluence of factors ranging from catastrophic natural events to shifts in technology.

“Captives are poised to become even more efficient.” Anne Marie Towle

According to Anne Marie Towle, chief executive officer Global Risk and Captive Solutions at Hylant, the industry is poised for continued growth into 2025. The key drivers shaping this expansion include the increasing frequency and severity of natural disasters, the ongoing complexity of property and liability insurance markets, and the growing role of artificial intelligence (AI) in risk management.

One of the primary factors affecting the captive insurance market is the continued challenges within the property insurance sector. Towle highlighted that despite some signs of relief in the final quarter of 2024, the overall trend remains one of rising costs, particularly for properties in areas vulnerable to natural disasters.

She noted: “The property market is still very difficult and challenging. This might be the first quarter where we’re not seeing significant increases, but there are still increases overall.”

Natural catastrophes—hurricanes, wildfires, and floods—are exerting pressure on insurers and property owners. Coastal properties, which are highly susceptible to hurricane damage, are experiencing substantial price hikes, even for those with clean loss histories.

Towle explained: “I was on a call with a prospect that has coastal properties. They’ve never had losses, and they’re trying to figure out how else to finance this risk. Is a captive a solution?”

Property insurance, which is vital for commercial as well as personal assets, has become increasingly difficult to secure in regions such as Florida, where insurers have exited the market or drastically limited their offerings. Towle underscored the point that catastrophic events are no longer rare.

“What used to be the one-in-100-year flood or the one-in-500-year event is starting to happen every five or 10 years,” she said. As the frequency of such events increases, the cost of insuring against them also rises, placing immense strain on traditional insurance markets and alternative risk-financing mechanisms such as captives.

The surge in captive formations

Given these challenges, many businesses and individuals are turning to captives as a solution. Towle pointed out that captive formations are accelerating, driven by rising insurance costs and the desire for greater control over risk-financing. She notes that new formations have not slowed down following the COVID-19 pandemic, but rather have accelerated.

“We feel as though it’s accelerating even more with new formations. The next generation of risk managers, HR directors, and CFOs have the data at their fingertips now, and they’re demanding alternative structures,” she said.

Captive insurance offers several benefits, including long-term risk management, greater flexibility, and the ability to customise coverage. While it is not a short-term cost-saving measure, captives allow companies to take control of their risk profiles, potentially reducing reliance on the commercial insurance market over time. In the face of volatile property and liability markets, captives provide an appealing alternative.

Towle highlighted the fact that this trend is not limited to property insurance. Auto liability remains a persistent challenge, and captives are increasingly being formed to manage risks in that area as well. Homeowners and condo associations are exploring captive solutions to combat rising premiums associated with natural disasters such as wildfires, flooding, and earthquakes.

“Whether it’s for commercial or personal purposes, the captive market is expected to remain robust into 2025,” she said.

The role of AI in risk management

Another key trend is the growing role of AI in risk management and captive insurance. While she is “not an expert on AI”, Towle acknowledges that AI has the potential to be a valuable tool for risk managers. AI can enhance data analysis, improve predictive modelling, and help companies make more informed decisions about risk.

Towle emphasised the need for caution, noting that AI should not be relied upon as the sole tool in a risk manager’s toolkit. “The more things you have in your toolbox, the better equipped and armed you are,” she said.

AI has the potential to revolutionise the way captives operate, but it is essential to ensure that its use is balanced and that managers remain aware of its limitations and potential risks.

The integration of AI into captive insurance is still in its early stages, but it is expected to play a larger role as more risk managers and CFOs embrace technology-driven solutions. As companies collect more data and develop better AI-driven models, captives could become even more attractive as a method of financing risk. However, as with any new technology, it is important to remain vigilant about the potential downsides, including issues related to data security and accuracy.

Looking ahead to 2025: continued growth and innovation

As we move into 2025, the outlook for the captive insurance market remains positive. Towle predicted continued growth in captive formations, driven by the need for alternative risk financing solutions. Whether it’s property insurance, auto liability, or healthcare-related risks, captives offer flexibility and control that traditional insurance markets often cannot match. In particular, Towle sees significant growth in healthcare captives, particularly in the area of medical stop-loss coverage, which is being driven by rising healthcare costs in the US.

Towle highlighted the increasing demand for cell captives, a type of structure whereby companies can “rent” a cell within an existing captive rather than setting up a single-parent captive. This trend is likely to continue as more organisations seek cost-effective ways to finance risk without the administrative burden of managing their own captive entity.

In conclusion, as the insurance market continues to face challenges from natural disasters, rising premiums, and evolving risks, captives will play a crucial role in providing alternative risk financing solutions. With the integration of AI and other technological advancements, captives are poised to become even more efficient and effective in managing risk.

Towle’s outlook for 2025 is one of growth, innovation, and adaptation—trends that will shape the future of the captive insurance industry for years to come.

Anne Marie Towle is chief executive officer Global Risk and Captive Solutions at Hylant. She can be contacted at: anne.marie.towle@hylant.com

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