Captives well suited to current hard market: Experts

SAN FRANCISCO — Although captives have been used for decades, they can be particularly helpful in reducing costs and obtaining better coverage in today’s hardening market, experts say.

Captives’ intent is “to help smooth out costs so you don’t have those peaks and valleys,” and they can “create a little bit of profit,” said Anne Marie Towle, Indianapolis-based global captive solutions leader for Hylant Group Inc.

She spoke during a session on captives Wednesday at the 2022 Risk & Insurance Management Society Inc.’s annual conference in San Francisco.

A captive can be individually customized and is an “extremely powerful tool that can be important when you think about it for self-insurance,” Ms. Towle said. Captives can be used for primary, excess or quota share layers.

Karen Hsi, captive program manager at the University of California in Fremont, said the savings provided by a captive can be used for a dorm, rather than giving the money to an insurer.

The first captives were started in the 1950s and 1960s and the alternative risk vehicles have since become “mainstream,” Ms. Towle said.

Ms. Towle said this “may be the time to explore” captives, amid the dramatic changes brought on by the pandemic, including increased cyber risks associated with more people working from home.

The University of California established its parent captive, Fiat Lux Captive Insurance Co., domiciled in Washington, D.C., in 2012, Ms. Hsi, said, adding that she has heard jokes about her foresight in establishing it before the hard market.  “It just made sense” from a pricing efficiency standpoint to put self-insured retentions and deductibles into a formal vehicle, she said.

Having a captive can “open up the door to reinsurance capacity” to which an entity may not have access in the traditional market, Ms. Towle said.

She said about 75% to 80% of captives are single parent, but there is a “plethora of options,” including group captives and those using a cell structure, which is akin to renting an apartment versus building a house.