An Active Year for Captives and Even Brighter Prospects Ahead

Editor's Note: Hylant Global Captive Solutions contributes this Thought Leadership article examining developments in the captive insurance industry in 2024 and looking ahead to 2025.

Our industry is closing out another banner year, and the road ahead looks equally bright. Despite macroeconomic concerns and inflationary pressures that created uncertainty in early 2024, more organizations have chosen to start or expand their captive insurance companies. We've observed growth across all forms of captives, from renting the simplest cell captives to managing complex programs that handle multiple risks.

The combination of heightened awareness of captives and the challenges traditional insurers face—particularly with climate-driven disasters—has encouraged risk managers to adopt smarter strategies. The emergence of new domicile options throughout the year has been a major driver of this growth. As familiarity with these opportunities increases, we can expect significant activity in those domiciles. For example, France established itself as a domicile and has grown steadily, while the United Kingdom is now exploring captive legislation, potentially for implementation in 2025.

Property continues to be one of the largest areas for captive utilization, alongside traditional lines such as auto liability, medical stop-loss, professional liability, and other employee benefit-specific coverages.

Creativity is flourishing in the captive sector, particularly in how owners leverage their accumulated profitability. Many are using their captives' success to fund initiatives that reduce claims. This includes everything from investing in more expansive safety programs to purchasing slip-resistant shoes for employees, adopting vehicle technology, or engaging experts to enhance the company's risk management objectives.

There are also encouraging signs that traditional insurers increasingly view captives as strategic partners rather than competitors. Insurers that have exited high-risk direct insurance markets recognize the value of reinsurance and fronting services for well-managed, actuarially sound captives.

Looking ahead to 2025, the commercial insurance market shows signs of slight softening. While the hard market that has persisted for several years isn't vanishing—especially in property lines—the volatility among commercial insurers appears to be stabilizing as they better manage claim costs and exit unprofitable coverage areas. A key wildcard remains the impact of this year's hurricane season, which began early but slowed before Hurricane Helene surprised the Southeast with unprecedented rainfall.

We expect to see expanded use of voluntary benefits as human resources and risk professionals explore ways to control benefit costs using captive insurance strategies. Many companies are enhancing their existing captives by, for instance, drafting manuscripted coverage to ensure their benefits programs meet employees' expectations and understanding. Strategies like these not only make benefit programs more efficient but also increase employee satisfaction and participation. Captives aligned with an organization's strategic goals—such as achieving economies of scale while confidently assuming some risk—are well suited to support these initiatives.

Captive insurers are also poised to play a growing role in managing the impacts of supply chain disruptions and business interruptions caused by adverse weather and technological events. Trade disruptions can significantly affect organizations relying on international sources. Financing part of this risk through a captive, supported by reinsurance, can help mitigate such impacts.

Cyber security presents another area of potential growth. The market has softened slightly as companies gain a clearer understanding of cyber threats and the practical limitations of cyber-security insurers. Captives remain a valuable tool for addressing unique cyber risks that fall outside traditional coverage.

One unknown is how artificial intelligence (AI) will ultimately reshape the insurance industry, particularly in underwriting and claims handling. Questions also remain about its broader effects on the insurance landscape. While answers will likely emerge from the tech sector and regulators, the captive industry must be ready to provide insight and adapt seamlessly to these changes.

As captives become increasingly sophisticated, the value of expertise cannot be overstated. Greater involvement in professional organizations has enhanced the field's collective knowledge and reputation. Captive conferences continue to attract larger and more diverse audiences, with attendees' willingness to share knowledge elevating awareness of best practices. The availability of expertise makes going it alone an increasingly unwise approach.

Fortunately, captives are positioned to deliver substantial benefits for the foreseeable future. As they evolve alongside the traditional insurance market, they will continue to adapt to broader changes in the business world. Optimism is not only justified—it's essential.