Captives’ appetite grows for non-traditional insurance coverages

About 50% of the survey participants are considering putting one or more new coverages in their captive in the next 12-24 months. While the other 50% are either already insuring non-traditional risk in their captive or are satisfied that the traditional coverage(s) in their captive meet their current risk financing needs, the survey found. CICA published the results from 255 survey participants. While single parent captive owners represented more than three quarters of the participants, the respondents to this year's survey represent a broader cross section of industries and domiciles than in previous surveys, said CICA. That said, the survey responses were similar across captive types, industries and domiciles, it noted. Of the participants, segregated cell owners represented 15.7%, RRGs 11.8%, and group captive owners 11.1%. More than a quarter (27.5%) of the captives were based in Vermont, with 15.0% from Bermuda, and 12.5% from the Cayman Islands. A handful of participants were captive managers who own captives in order to assist existing and prospective clients with their risk management needs.hideThe survey asked participants to list "Emerging Risk Hot Topics", as well as non-traditional risks either currently written in a captive, or that they are planning to write in the captive. Cyber risk, mentioned by more than three-quarters of respondents (76.3%), is the number one emerging risk, followed by supply chain (42.5%), medical stop loss (39.1%), regulation (37.2%), talent management (28.5%), emerging technology such as drones, Internet of Things, etc. (25.6%), terrorism (17.9%), weather risk (15.0%), longevity/pension risk (15.0%), and political unrest (13.5%). In the 'Other' category (9.2%), the issues arising from the sharing economy (Uber, Airbnb, etc.) are just beginning to emerge as risk management concerns, said CICA. Cyber risk is also the number one non-traditional risk that the survey participants are currently writing in their captive (36.4%), and planning to write (48.0%). The survey found: Non-Traditional Risks in Captives (Planned) Cyber Risk (48.0%) Medical Stop Loss (43.3%) Product Warranty (17.3%) Product Recall (13.4%) Other (19.7%) D&O Liability (11.8%) Credit Risk (11.0%) Specialty Risk (12.6%) Employee and/or Retiree Life (15.0%) Longevity/Pension Risk (7.1%) TRIA (and amended) (4.7%) Non-Traditional Risks in Captives (Current) Cyber Risk (36.4%) Medical Stop Loss (22.3%) Product Warranty (25.6%) Product Recall (25.6%) Other (19.0%) D&O Liability (26.4%) Credit Risk (26.4%) Customer/Third Party (33.1%) Specialty Risk (14.9%) Employee and/or Retiree Life (8.3%) Longevity/Pension Risk (2.5%) According to the survey participants, the top five ways that their captive currently creates value are: plugging holes in their insurance programme (73.7%); recapturing premiums that would otherwise be spent in the commercial insurance market (67.4%); providing unique coverage (59.4%); accessing the reinsurance market (54.9%); and funding retentions/centralising buying (54.3%). When asked what would enhance their ability to maximise the value their captive can create, a quarter thought they would need a consistent, supportive regulatory environment, another quarter reported that they would need an aligned partnership with their fronting carriers, reinsurers and service providers, and just under a quarter felt they would need greater senior management support. Nearly one-fifth said they would need a supportive tax code. By far the biggest challenge cited by the survey participants in doing more with their captive was resources (30.1%), followed by lack of management support (21.5%), use of capital (12.0%), upfront costs of new programmes (11.4%), and lack of knowledge about other, new ways to use their captive (10.8%). The survey revealed that there are two ways of overcoming these challenges: "Firstly, effective communication by, and among, all stakeholders as respects the value and benefit of a captive, especially in quantitative terms that senior management at the parent company can relate to, and secondly, enhanced partnerships/alignments among all stakeholders regarding the vision, goals, objectives and expectations throughout the life cycle of the captive." CICA members can access the full, compiled results, including open-ended responses and a breakout for single parent captives, on the members-only section at www.cicaworld.com.

Captives’ appetite grows for non-traditional insurance coverages

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