[Read and watch] The expanding importance of captive insurance in the US

In the first of two articles based around an online panel of captive insurance experts, Captive International takes a look at the dramatic rise of captives in the US.

The captive insurance industry has evolved into a significant force within the broader US insurance landscape. No longer just an “alternative” option, captive insurance is now a mainstream approach that provides organisations with the flexibility, control, and financial benefits they require to manage their risks.

“Captives are often crucial for industries that face high retention limits.” Al Rhodes

Captive International hosted an online panel of experts from various sectors within the insurance and financial services industries. The importance and growth of captive insurance were examined, shedding light on why the US has become a dominant player in this space and how captive insurance contributes to the overall insurance ecosystem.

Watch the full panel discussion below.

Al Rhodes, president and senior actuary at Sigma Actuarial Consulting Group Inc., opened the discussion by acknowledging the sheer scale of the captive insurance workforce in the US and how the country’s infrastructure supports its leading position as a captive domicile. “A lot of people work in the captive industry here in the US,” Rhodes said. Over the last decade, the growth of US domiciles offering captive insurance has been impressive. In the past, companies seeking to establish captives would often turn to offshore domiciles such as Bermuda or the Cayman Islands.

Today, US states such as Vermont, Tennessee, North Carolina, and South Carolina are attractive options due to their well-established infrastructure and regulatory frameworks.

Michael Corbett, a former chief regulator for captive insurance in Tennessee and current advisor at Pinnacle Financial Partners, traced the rise of US captive insurance to legislative changes that began in the late 1970s. “Back in 1978, the first captive legislation was passed by Tennessee and Colorado, followed by Vermont and several others,” Corbett explained. However, it was not until the early 2010s that captive insurance in the US truly began to take off. Companies increasingly opted to form captives onshore, drawn by supportive local legislation and the convenience of proximity.

One of the key drivers behind this growth has been the economic benefits to states and businesses. Corbett highlighted how states have recognised the economic and employment opportunities that come with supporting captive insurance.

“States, governors, insurance commissioners are all going to see that there’s both an economic benefit and an employment benefit to creating jobs in the captive insurance space,” he said.

“States have recognised the economic and employment opportunities that come with supporting captive insurance.” Michael Corbett

The regulatory and tax landscape

Beyond the legal framework and economic benefits, changes in US tax regulations have made domestic captive insurance an attractive option. Anjanette Fowler, managing director at PNC Institutional Asset Management, pointed out: “Changes in the US Tax Code are making it more enticing to onshore your captive.”

Fowler emphasised how the ease of travel, along with a domicile’s commitment to staffing and legislative support, has become a pivotal factor in determining where companies choose to establish their captives. She noted that mature domiciles such as Vermont and Tennessee have regulators who are willing to “go in to bat” for their captive owners and work with legislatures to ensure the necessary legal frameworks are in place.

Mikhail Raybshteyn, tax partner at EY, added that the US captive insurance market has benefited from a levelling out of the tax landscape between domestic and foreign jurisdictions. “This levelling out removed a potential benefit that companies may have been looking for,” Raybshteyn explained. This change, along with the hard insurance market that hit US businesses particularly hard, has spurred domestic growth as companies opt for US-based captives over foreign jurisdictions.

“The ease of travel along with a domicile’s commitment to staffing and legislative support has become a pivotal factor.” Anjanette Fowler

Captives in the broader market

Captive insurance has grown from being a niche or alternative approach into a mainstream risk management tool for many industries. According to Fowler, captives have become a necessity for organisations facing rising premiums and tough insurance market conditions.

“Captives have become a necessity and a tool they need,” she said. For companies experiencing negative financial outcomes due to risk financing costs, establishing a captive provides an opportunity to take control of their insurance expenses, retain underwriting profits, and accumulate assets that can be reinvested into the business.

Captives play an increasingly important role in smoothing out risk financing costs and giving companies greater control over their insurance programmes. Fowler noted that many organisations initially feel uncomfortable with setting up a captive, but once they experience the benefits, they rarely look back.

“There’s no trending backwards once they get a taste for this and see the control that it gives them,” she said.

On a broader level, Raybshteyn argued that captive insurance is no longer simply an “alternative” option within the US insurance market—it is now an integral part of the industry.

“Captives are no longer the little brother or sister of the broader insurance industry,” he stated. Over the past decade, captives have moved from the fringes to the centre of the insurance market, often working in tandem with commercial carriers to provide more comprehensive risk management solutions.

“Captive insurance is no longer simply an ‘alternative’ option within the US insurance market.” Mikhail Raybshteyn

Importance to key industries

The importance of captive insurance extends well beyond the insurance industry itself. As Corbett noted, captives have become essential tools for industries such as manufacturing, healthcare, banking, and the service sector. He shared an example from Pinnacle Financial Partners, which formed its first captive in 2004.

“Here we are, 20 years later, and the captive has got close to $16 million of surplus sitting in it. We take the first million dollars of deductible across all of our programmes,” Corbett said. The benefits of captives to industries like these go beyond risk management; they also provide financial flexibility and capital accumulation.

Rhodes added that captives are often crucial for industries that face high retention limits, such as trucking. “For example, let’s look at the trucking industry,” he said, explaining that the industry has seen retention levels increase dramatically over time. Without captives, companies in such industries would struggle to secure the necessary insurance coverage, potentially risking their operations.

The US captive insurance industry has grown into a vital component of the country’s broader insurance landscape. What was once considered an alternative risk financing mechanism is now a key part of many organisations’ financial and risk management strategies. As Fowler noted: “There’s no end in sight” for the continued growth and necessity of captives, particularly as organisations face rising premiums, a hard insurance market, and increasing natural disaster risks.

Whether driven by tax changes, regulatory support, or industry-specific needs, captives offer businesses the control and flexibility they need to navigate today’s complex risk environment. As more companies turn to captives to manage their risks, the panel agreed that the US captive insurance market will continue to expand, solidifying its role as a vital part of the broader insurance ecosystem.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.