From: Captive Insurance Times

Although it is suggested cell captives do not promote innovation, industry experts explain that they can provide the regulatory structure to support innovation

A cell captive is structured as a way for a corporate entity to access the benefits of captive insurance without setting up its own captive insurance company. However, first-party business is not the only application for the cell captive model. The cell captive structure can also be used to cover the risks of the clients or members of the cell owner.

The structure is frequently used by a lot of consulting firms, insurance/reinsurance companies, brokers and insurance agents who use cell captive structures for their clients and prospective clients. However, they are also used by larger organisations that use cell captives to insure and reinsure programmes where, for a variety of reasons, they do not want to commingle assets and liabilities from certain programmes or lines of coverage.

Michael Rogers, chairman and CEO of Risk Services Companies, suggests that firms forming cell captives are usually doing so due to either size or time constraints.

Rogers says: “Firms that are not quite big enough to justify the fixed cost of owning their own captive often choose the cell captive route as a stepping stone to a future owned captive. Many cell captives write fully funded policies for unavailable, unaffordable or uninsurable coverages.”

The cell captive structure can support this innovation by giving the parent the ability to segregate different risk financing arrangements to best finance organisational risks.”

Courtney Claflin, University of California

Richard Eales, managing executive at Guardrisk Insurance, adds that a cell captive facility offers clients “all the benefits of a single-parent captive, without the inherent legislative and administrative burdens”.

Cell captive insurers provide underwriting, reinsurance, claims management, regulatory, investment, actuarial and accounting functions for cell owners, which keeps costs down and gives clients access to a broad base of insurance skills.