Traditional insurers should collaborate with captives: Report

Captives are no longer considered an alternative market and traditional insurers have an opportunity to collaborate with them and offer services that complement captive operations, Ernst & Young Global Ltd. said in a report released Thursday.

Captive insurers now represent nearly 25% of the overall commercial insurance market as the hard market continues with nearly every Fortune 500 company owning and operating its own captive insurer, EY said.

Some $176 billion in global premiums were written through captives in 2022, according to data cited in the report, and more companies are putting more risk on their balance sheets and keeping it there.

“For all the competitive threat presented by captives, there are opportunities for carriers to engage and innovate with solutions that cover strategic, functional or geographic gaps in captives’ operations,” EY said.

Fronting and reinsurance are among the ways in which traditional insurers can support captives, allowing them to reduce risk exposure and gain capacity, EY said.

Global insurers can also plug geographic gaps by offering coverage for multinational companies and helping them manage risks across different jurisdictions, EY said.

Insurers can also offer captive management services such as feasibility studies, operational reviews, accounting and regulatory filings, EY said.

Analytics and claims management are other growth opportunities for traditional insurers to support captives, EY said.

Insurers can also improve captives’ approach to risk mitigation by, for example, providing expertise that addresses mortality and health-related risks for employees, EY said.

“For insurers looking to diversify their portfolios, entering the captive insurance market can provide exposure to different industries and risk profiles,” the report said.