From: Captive International

Australia has been the victim of bushfires, severe hailstorms and flooding, as well as other industry-specific risks. The number of businesses turning to captives to help manage these risks is growing all the time, says Marsh’s Rob Geraghty.

In a rapidly changing world, the risk landscape faced by organisations is constantly evolving. The full economic impacts of COVID-19 are yet to be known but prior to the pandemic, emerging risks, changing climate patterns, increased cyber attacks, and changing regulatory conditions were all affecting the risk landscape.

Catastrophe losses have been increasing in frequency—over the past 18 months alone, Australia has experienced bushfires, severe hailstorm damage, and flooding, all causing significant losses for insurers.

These disasters have led to loss ratios exceeding 100 percent for many carriers on policy lines over multiple years, causing sharp adjustments in pricing, capacity, and coverage. To add to this, reinsurers are reducing capacity or withdrawing capacity altogether on some risks, thereby increasing pricing, and further restricting flexibility with underwriting.

In 2019, the average underwriting profit made by each of these Australian-parented captives was more than $3.5 million.”

According to Marsh’s latest “Global Insurance Market Index”, the second quarter of 2020 was the 14th quarter in a row that recorded increases in composite insurance pricing in the Pacific. In the search for solutions, a captive insurance company is often at the top of the list for Australian clients. Even companies with traditionally conservative risk management philosophies have looked to innovate and keep costs down through captive insurance.