Captive insurance entities formed at a record pace in 2020
During a tumultuous year, organizations in nearly every industry turned to captives to help cover their risks.
In 2020, captive insurance entities were created at a rate well above historic norms, according to Marsh, which reported it had more than 100 clients form captives during the period.
Pandemic-driven disruptions, record natural catastrophe frequency and liability claims inflations, which have each increased risk transfer costs, are making captives more attractive options, the insurance broker and risk advisory firm reported.
Further, captives are proving flexible in meeting insureds’ needs, as shown through the growth in lines that were not written by captives a decade ago. For example, cyber insurance has shown regular growth within captives, increasing 13% from 2019-2020 and nearly 130% during the past five years, according to Marsh.
During 2020, cyber coverages within captives saw net premiums written grow 54%. Other lines that saw big increases in net premiums written within captives included directors and officers, medical stop-loss and excess liability.
Range of industries turning to captives
Captives were leveraged across industries, Marsh reported, with the automotive sector seeing the biggest change in the number of captive entities, growing 28% from 2019-2020. Other industries that saw double-digit increases were sports, entertainment and events; financial institutions; life sciences; communications, media and technology; food and beverage; manufacturing; and marine.
“Captives enable organizations of all sizes to better manage their costs and take greater control of their insurance programs, which is making them a hugely popular risk financing mechanism in today’s challenging insurance market,” Ellen Charnley, president of Marsh Captive Solutions, said in a release. “We continue to see growth in 2021 in nearly all captive domiciles around the world from existing captives as well as new formations. We are on track to form a significant number of captives this year.”
Additionally, some sectors that saw a decline in the number of captive entities also witnessed sizable premium growth in the captives. For example, the hospitality and gaming industry experienced a 10% decline in the number of captives but a 61% increase in premiums. A similar scenario played out among power and utility companies; public entities and not-for-profit organizations; and mining, metals and minerals outfits.
Protected or segregated cell companies were the most commonly created captive entities, growing year-on-year growth of 53%. These types of captive vehicles can be easy to set up, according to Marsh, which might have helped propel the growth seen during the past year.
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