As expected, 2023 proved to be another year of high demand for captive insurance. Healthcare costs, nuclear verdicts, cyberattacks, catastrophic climate events, and market-specific drivers are leading to steep commercial insurance premiums, prohibitive exclusions, and even complete lack of insurability as reinsurance decreases. For many, the solution has been to retain more risk in a captive insurance company, allowing them to choose the optimum point at which to transfer risk to third parties.
As more businesses explore the benefits of captives as an alternative risk financing solution, there has been an uptick in the use of a captive providing insurance backing to warranty programs, tenant damage and security deposit waivers, self-storage contents protection, and the like. When well run, these captives offer a revenue stream complementary to the core business. As the captive grows in size, the business has more options in the amount of risk they can retain. The most sophisticated clients are writing multiple lines of coverage through their captive to maximize the utility.
Captives remain a strong alternative to traditional insurance and we expect no material changes in the captives market.