The Covid-19 pandemic has accelerated an already emerging trend of corporates taking refuge in their own captives, and brokers will need to change the way they operate in response

By insight editor Matt Scott

The Covid-19 pandemic is having a profound impact on insurers and their clients.

And the increase in risk that has followed for many businesses has only served to exacerbate heightened risks across the world that had already hit the market in 2019.

This is leading to an increase in the use of captives, with Marsh revealing a 238% increase in supply chain, business interruption, and contingent business interruption premiums written by Marsh-managed captives in 2019.

Meanwhile, all-risk property premiums rose by 64% on average, led by the energy and financial institutions sectors, which saw all-risk property premiums rise by 151% and 104% respectively.

This year, Marsh says that it has already set up a record 76 new captive insurance companies from January through July this year, an increase of more than 200% on the same period in 2019.

While pandemic-related losses are not the sole purpose of establishing these captives, it would be foolish not to see the link between the heightened risk created by Covid-19 and the ensuing rise in popularity of captive insurers.

Of course, the business interruption scandal that has rocked the market will only serve to damage the reputation of insurers in this area and increase the appeal of larger organisations setting up their own insurance operations by way of a captive.

Indeed, further research from Marsh has found that more than half of captive owners are planning to expand the use of their captives, either by way of adding additional lines of coverage or increasing retention levels.

All this means that brokers and insurers that operate in the captive arena will have a changing landscape to manage, with clients that are looking to increase the scale of their operations or even start a new captive from scratch.

This will lead to an increase in demand for advice and expertise related to running a captive, as well as increased demand for captive capacity.

And for those insurance businesses that don’t operate in the captive arena, this will inevitably lead to reduced premiums being placed by those larger corporates and organisations who are capable of running a captive, creating further pressure on a market that is already facing intense challenges.

But until rates start dropping and insurers can once again regain the trust of their clients, this is a trend that is only going to accelerate. Brokers, and insurers, will just have to adapt and find a new way to operate in this changing landscape.