From: Captive Insurance Times
Industry professionals discuss the current captive insurance market trends, causes of the hardening market, and the impact of COVID-19 on interest around alternative risk financing
Following around 15 years of soft performance in traditional insurance markets, consisting of stable premium pricing, lower underwriting criteria and relatively affordable insurance rates, the last few years have experienced a definitive trend towards a hardening market.
A hard market is characterised by several factors, including higher insurance premiums, reduced capacity, less competition among insurance carriers, more stringent underwriting standards, and general uncertainty and volatility in financial markets.
Pete Kranz, captive practice leader at Beecher Carlson, identifies that in this context of a hard market, there has been a significant pattern of pushback by umbrella and excess insurance markets against captives, noting: “Where it was historically easier to have captives participate in high umbrella and excess layers, including on a quota share basis, we are beginning to see some pushback which definitely gets my attention.”
Looking broadly across the captive insurance industry, Nate Reznicek, head of US distribution at International Re, adds: “Generally speaking, workers’ compensation still remains soft while commercial auto and general liability classes rise. From a trade perspective, it has made hard-to-place trades even more difficult to place, especially heavy transportation, general contractors and general liability for the habitational trade.”
“In some cases, rates in the excess market increased so dramatically that purchasing the coverage became non-viable, leaving many insureds potentially under-insured or unable to meet the insurance requirements within their agreements,” Reznicek explains. “Although it has long been a talking point in the industry, for the first time we are consistently seeing captives take a hard look at buffer layers as potential premium savings.”
Richard Smith, president of the Vermont Captive Insurance Association (VCIA), affirms that a hard market is beneficial to captive owners: “There has been continued robust growth not only in Vermont, but throughout the captive insurance industry.”
“Obviously, the continued hard market in the traditional insurance industry has fuelled this growth, but we saw growth trends even before the hardening — there was growing interest by small- to mid-sized companies seeking to get control over their risk.”