Captive Insurance Enters Mainstream Risk Management
Captive insurance, once a niche tool for large corporations managing property and casualty risks, is undergoing a significant transformation. Now referred to as ‘Captive 2.0,’ these insurance vehicles are being leveraged as strategic financial tools, expanding into new areas such as cyber liability, employee benefits, and directors and officers (D&O) liability.
According to Marsh data, captives globally wrote $77 billion in premiums in 2023, a 6% increase from the previous year, with 92 new captives established worldwide. Rob Geraghty, Marsh’s global head of captives, notes that deeper C-suite involvement is leading companies to explore new ways to utilize their captives. ‘There’s more demand from companies wanting to get more out of existing captives,’ Geraghty explained. ‘CFOs are asking if they can retain more risk, write additional lines, or explore alternative risk transfer methods like parametrics or multi-year programs.’
Expansion Beyond Property and Casualty
Captives are increasingly becoming the first point of consideration before companies approach the commercial market. Geraghty highlighted that captives are no longer limited to property and casualty insurance. ‘We’re seeing companies use them for cyber, trade credit, political risk, intellectual property, and even supply chain disruption.’
Employee benefits (EB) have emerged as a key growth area, now accounting for about 20% of Marsh’s global captive portfolio. ‘EB had quieted down, but over the last 12 to 18 months, it’s back in focus, especially for global companies,’ Geraghty noted. Employers are exploring whether they can integrate EB programs or set up separate captives specifically for employee benefits.
Other areas experiencing significant growth include D&O liability, which saw a 49% increase in 2023, cyber liability (up 17%), and commercial life insurance (up 25%). Cyber insurance, in particular, has become a mainstay in captive insurance, with premiums growing from $13 million five years ago to $170 million today. Some companies have even established dedicated captives or protected cells to manage cyber risk.
Geographic Diversification and Emerging Risks
Captive growth is not limited to new insurance lines; it’s also expanding geographically. Canada has seen a significant increase, with premiums rising 78% in 2023, largely driven by Alberta, which recently opened to captive formations. The US has also experienced growth in states like Utah, Arizona, South Carolina, and the District of Columbia.
As companies face emerging risks such as artificial intelligence (AI) and renewable energy, captives are providing a means to test and scale coverage. Geraghty draws parallels with the evolution of cyber insurance, where companies initially took small retentions before building confidence and increasing their coverage. ‘The same model can apply to emerging risks,’ he said. With $120 billion in surplus capital globally across captives, there’s substantial capacity to support this growth.
Looking ahead, the momentum for captives is expected to continue. Countries like France have enacted supportive legislation, leading to over 22 new captive formations since 2020. The UK is also considering similar moves, which could provide more domestic options for companies.
After two decades in the industry, Geraghty views this as a defining moment for captives. ‘The future looks very strong,’ he said. ‘I’ve never seen them this mainstream. Years ago, they were niche. Now, they’re a central part of global risk strategies.’
