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Boom in captive insurers writing third-party risks

The number of captive insurance companies writing third-party business is growing at double-digit pace as the digital era expands the ways that organisations deliver insurance solutions, according to a report by Marsh.

In its just-published 2019 Captive Landscape Report, the insurance broking and risk advisory giant notes that technology advances such as mobile applications are making it easier for organisations to offer insurance to their customers and suppliers By underwriting those third-party risks in a captive, parent companies can bring in additional premium and generate profits should the captive perform well.

The report examines trends among 1,100 captives managed by Marsh Captive Solutions globally. In 2018, 22% of Marsh-managed captives wrote some form of third-party business, an increase of 12% from 2017 and a 62% increase over the last five years. In particular, coverage for contractor, vendor, and customer risk continued its steep growth trajectory, increasing 138% among Marsh managed captives in the past five years. In 2018, Marsh captives writing such third-party risk generated a total of US$162 million in net premiums.

Likewise, Marsh-managed captives wrote more than US$3 billion of net premiums for extended warranty coverage in 2018 while the number writing such coverage, which protects a range of assets from computers to automobiles, has increased 22% in five years.

A flexible tool

“More risk professionals today are embracing captives as a tool to secure their organisation’s futures, whether it’s generating profits by underwriting third-party risks, accessing reinsurance, or providing cost efficiencies,” said Ellen Charnley, president of Marsh Captive Solutions.

“No matter the structure or premium volume, captives offer flexibility to access and protect capital, accelerate business objectives, and facilitate the funding of programs that promote employee health, well-being, and safety.”

Other key findings from the report include:

  • Over five years, the number of Marsh-managed captives writing multinational employee benefits has increased 243% and those writing cyber liability coverage increased 95%
  • .Among regions where captive parents are based, growth over the past five years has been robust: Asia-Pacific, up 24%; Middle East, up 33%; Caribbean, up 18%; and Latin America, up 17%.
  • Financial institutions remain the largest user of captives, representing nearly 23% of Marsh- managed captives.

The report adds that emerging technologies such as blockchain represent opportunities for captives to not only insure new risks, but to also reduce operating expenses by facilitating the distribution of policy information, proof of insurance, and claims payment.

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