How Captives and Program Solutions Can Benefit Insureds Amid Social Inflation and Rising Insurance Prices

CMR Risk & Insurance Services Inc. > Blog > General Industry > How Captives and Program Solutions Can Benefit Insureds Amid Social Inflation and Rising Insurance Prices
Posted by: CMR February 14, 2023 No Comments

As markets harden, insureds from every sector may be experiencing hefty premium increases across lines. In recent years, as the insurance industry has attempted to balance its books in the face of inflation and the aftermath of the COVID-19 pandemic, rate increases have become the norm, even for businesses with good loss histories.

Take the commercial auto and workers’ compensation lines, for example. Talent shortages in trucking have caused firms to bring in newer, less experienced drivers who might be more likely to get into an accident. Added to that, insurance companies are considering the impact of social inflation on jury verdicts should a claim end up going to trial.

Workers’ comp has struggled with similar talent shortages. As industries from construction to manufacturing fight to attract and retain workers, they may deal with staffing issues and younger, less experienced workers — both of which can lead to an uptick in injuries.

“It’s important to step back and look at what’s happening overall in the world,” said Alfred Bergbauer, head of Multinational, Captives, Programs and TPA services at The Hartford.

Frustrated with premium spend rising, many companies are considering captive and programs solutions for some of their exposures. These solutions help businesses get the protection they need at a lower rate than traditional insurance policies.

Major Premium Increase? Consider These 3 Different Types of Captive Insurance Solutions

Hard markets often bring increased attention to captives as a risk transfer solution. Brokers and agents may suggest their insureds use captives to retain some of their exposures, especially if they’re seeing major premium increases.

“Captives are such a topical item, and it’s on everybody’s radar. Brokers are talking about it; agents are talking about it,” Bergbauer said.

“We take a lot of time with our captive managers, researching clients to really understand what it is that a group needs or an individual and a single-parent captive might need.”

Here are three different types of captives that businesses can consider if they’re looking to self-insure some of their losses.

1) Single-Parent: The “flagship captive solution,” so to speak, a single-parent captive is when a single parent company insures a portion of its own risks.

When setting up a captive, a company will work with actuaries to estimate its losses within a retention layer that is funded by the client through a captive. The insurer provides traditional insurance over the captive retention and issues policies in the jurisdictions where the parent company operates.

“Rather than swapping dollars with an insurance company, you’re retaining the working layer of losses yourself,” Bergbauer said.

2) Group: As with a single-parent captive, group captives are self-insuring a portion of their risks. The difference is that a group of businesses, rather than a single company, works together to set aside risk transfer funds.

The companies in a group captive may share similar risks, such as a group of architects getting together to self-insure some of their exposures, or they may come from different industries but share similar risk management philosophies. Members often go through an extensive screening process to make sure they’re a good fit.

“There’s a strong vetting process,” Bergbauer said. “They want to look at their operations, they want to look at their safety procedures, they want to look at the driver training and safety records and really, really understand that this is a company that’s performing at the highest level of safety and care in their industry, because they don’t want to have a poor operator come in and introduce more frequent or severe losses to the captive.”

Group members also share safety and loss control strategies with each other. Many have a risk manager for the captive, which can help facilitate best practices and the sharing of ideas.

“When it really works, it’s powerful, and it’s a self-supporting cycle of high-value risk management and feedback into how to be a better operator in your business,” Bergbauer said.

3) Agency: An agency captive is established for the clients of a specific agent.

“The most successful agency captives consist of clients who want to actively utilize loss information and proximity to the claim process to develop risk improvement and mitigation plans to make their operations and products safer,” Bergbauer said.

Programs: What Are They and How Can They Benefit Insureds?

Another solution insureds may turn to in hardening markets is programs. Programs provide tailored insurance solutions for moderate- to high-hazard exposures that can be difficult to place, or those that require specialized underwriting. These products are offered on a guaranteed-cost or loss-sensitive basis to meet the risk appetite of individual clients.

Source –

CMR Captive Services and Programs

Author: CMR

Leave a Reply