Use of captive surging, reports Aon
Aon’s new Captive Benchmarking Survey shows that hardening insurance markets are pushing more organisations to consider alternative risk solutions. The survey finds captive and protected cell usage has increased across most industries in the past two years, with particularly pronounced rises in use to manage property damage/business interruption, directors’ and officers’ and cyber risks.
“It is 20 years since we have seen such captive growth on a sustained basis across all of our operations,” wrote John English, chief executive officer for captive and insurance management at Aon.
According to the broker, since 2018, there has been a 73% increase in premium retention among captives it managers, including a 361% increase in property damage/business interruption retentions and a 26% increase in general liability retentions. These areas still make up the lion’s share of premium volume written by Aon’s client captive insurance entities, but captives are increasingly used for other risks.
“Alongside these more traditional risks, some organisations are innovating and using their captives to support their risk management strategy for several hard-to-place or emerging risks, like cyber and environmental,” he continued.
Captive premiums for cyber and environmental cover have seen 650% and 400% increases, respectively, in the last five years. Captive programs are also being used to support flexible employee benefit schemes “going above and beyond the coverage limitations in the market”.
The growth is likely to continue in the coming year, according to English, who reports that Aon saw its number of captive feasibility studies for clients in 2020 increase by half, with a further rise looking likely for and 2021.
“Feasibility studies are a good indicator of interest in captives, and this surge in interest is indicative of the trend for more captive formations in the coming months.”