Over the last several years, traditional insurance has become increasingly expensive as insurers use risks and claims associated with the COVID-19 pandemic, geopolitical risk, supply-chain disruption, inflation and intensifying severe weather events to justify premium raises and coverage reductions. While premiums hikes may have fallen from the height of the hard market in 2020, recent reports have found consistent, rising average pricing rates as the difficult market continues across most product lines.

In response, some policyholders have turned to non-traditional solutions to mitigate risk, such as captive insurance, self-insurance and risk retention groups. In particular, the number of captive insurance companies registered in the United States has risen steadily, with the Insurance Information Institute recording a 14% increase in captive registrations in 2021. State regulators have also taken notice. Earlier this year, the Delaware legislature passed an amendment to the statute governing Delaware corporation's ability to indemnify directors and officers, clarifying that "insurance" purchased to insure company directors, officers, employees and agents includes captive insurance. While captive insurance companies represent an alternative to traditional insurance, recent legal activity reveals the importance of structuring and implementing captives correctly.