Survey Finds Market Conditions Leading to More Captive Formations

Amid tightening conditions in the commercial insurance market, more organizations are forming captive insurance companies, according to a new Marsh LLC survey.

"Marsh formed a record 76 new captive insurance companies from January through July this year, up over 200 percent compared to the same period in 2019," Ellen Charnley, president of Marsh Captive Solutions, said in a statement.

That increase in captive formations comes amid a surge in the amount of business funded in 2019 through captives, according to the Marsh 2020 Captive Landscape Report, which is based on data shared by about 1,240 Marsh-managed captive insurance companies.

For example, premiums written by Marsh-managed captives rose an average of 283 percent last year for supply-chain, business interruption, and contingent business interruption coverages.

In addition, all-risk property premiums jumped an average 64 percent, led by the energy industry and financial institutions, whose captive insurance premiums rose 151 percent and 104 percent, respectively, according to the report.

While only a small percentage—just 9 percent—of Marsh clients are using their captives to fund employee benefit risks, that percentage is likely to significantly increase in the years ahead, with 30 percent of captives surveyed saying they are likely to consider such an expansion and 7 percent saying they are currently considering such an expansion.

While cost savings has been a major reason behind that expansion, the Marsh survey noted, "Multinational companies especially are looking to create customized and consistent benefit programs that enhance the value proposition for current and prospective employees."