Captive Insurer Growth Areas: Benefits, Third Parties, and Cyber

Driven by greater interest in and awareness of their potential value among C-suite executives and others, the number of organizations using captive insurers continues to grow. And, according to Marsh’s 2019 Captive Landscape report, so do the ways in which organizations use them. Three areas where we are seeing particularly strong growth: benefits, third parties, and cyber.

Benefits Coverage Rising

Captive participation in multinational benefits has grown 243% over the past five years, according to Marsh’s report. Over the same period, US employee benefits written through Marsh captives increased by 36%, and medical stop-loss by 25%.

One reason behind this trend is that human resources departments now appreciate a captive’s ability to efficiently fund employee benefits programs, which can help attract and retain diverse talent. Of course, interest extends beyond HR managers as benefits represent a considerable expense. Globally, medical benefit costs rose 9.5% in 2017 and are forecast to grow 9.1% for 2018.

As they increase benefits coverage, many captives are also innovating. For example, many captives offer benefits coverage for same-sex domestic partners and for HIV and infertility treatments.

Potential Profits in Third-Party Liability Coverage

CFOs are also increasingly recognizing the benefits of captives, including to potentially act as profit centers by underwriting extended warranties and other third-party risks. Over the past five years, the number of Marsh-managed captives writing third-party coverages has increased 62%.

Used in this way, captives can help businesses retain customers and/or strengthen supplier relationships while generating revenue. Captive-funded loss control programs can also improve productivity.

In 2018, 22% of Marsh-managed captives globally — with a value of $18.7 billion in premium — wrote some form of third-party coverage. Over the past five years, the number of captives offering extended warranties grew by 22%, representing more than $3 billion of net premiums.

Other growing third-party coverages include auto liability, which generated more than $1.2 billion of net premiums for Marsh captives in 2018, and independent contractor/customer risks, which increased 138% in five years and generated more than $162 million in net premiums in 2018.

Cyber Liability

As would be expected given the ever-increasing cyber risks businesses face, the number of captives writing cyber liability increased 95% over the last five years, including a 15% increase from 2017 to 2018. Like benefits and third-party liability, this growth is driven in part by interest from key stakeholders—in this case, chief information and chief technology officers. But there are other factors too:

• US captives that access the Terrorism Risk Insurance Program for property insurance can now also access it for cyber terrorism events that are certified by the US Treasury secretary.
• Capital and surplus from a captive can fund analytics and cyber risk assessment services.
• Captives can facilitate risk data sharing across the enterprise to inform business decisions.

As captives evolve with their parent organizations’ needs, the many structural options they offer mean they can help deliver financial solutions that maximize value while also helping C-suite executives and other stakeholders meet several important strategic goals.