Fertile ground for growth

There is a definite buzz around the captive insurance industry at the moment. For a market that was born as a response to the challenges that arise from a hardening market, the last 18 months have been an opportunity to remind captives owners why they went to the effort of establishing their captives.

For those companies that do not already have one, especially in the mid-market, it is an opportunity to showcase why they should.

The COVID-19 pandemic has only reinforced this trend, exacerbating the firming of the market, or the expectation of it in coming months. The pandemic has created friction between some insureds and their commercial insurance providers, for example in instances where businesses have belatedly learned that their business interruption cover applies only to physical property damage.

There has been much talk about using captives to provide a more comprehensively defined business interruption coverage going forward.

More broadly, captives owners have certainly appreciated the extra support captives have been able to provide in this, the most challenging of years. Many captives have provided their parents with much-needed liquidity in recent months, helping them overcome a uniquely challenging set of economic circumstances.

Again, if any long-time captives owners had come to wonder whether it was worth the extra hassle maintaining a captive during recent soft market years, the last few months have answered them emphatically.

Meanwhile, innovation continues apace. New challenges call for new solutions and interesting work is being done in the parametric insurance space, to provide coverage for pandemics and other risks. Ryskex, the winner of a Lloyd’s Lab Fusion event for startups developing innovative products, discusses how these products can revolutionise the industry in this issue.

The industry is not without its challenges. All eyes will be on the US Supreme Court later this year when it hears CIC Services’ case against the IRS in the latest instalment of the ongoing saga around 831(b) microcaptives.

Nobody expects this to be the final word in the ongoing dispute between advocates of these structures and the tax collectors, but a victory for CIC Services would definitely change the mood music for a business that has suffered a series of legal setbacks in recent years.

Some argue that microcaptives are the perfect vehicles for writing things such as pandemic coverage, but some businesses may be nervous about going this route if they believe it will invite the attention of the IRS.

This issue also examines the continued growth of the legacy industry in the US, where an increasing number of captives are taking advantage of the opportunity to pass off old exposures, allowing them to focus on the challenges ahead.

Legacy has not been around in the US for as long as it has in the UK, but the size of the US captive insurance industry has provided fertile ground for the growth of this industry and business is booming for specialist providers. Solomon Teague, editor, Captive International