Captive Insurance Trends for 2022

It’s hardly a secret that the global economy has seen better days. The situation isn’t much better in the U.S., where the economic state of the commercial insurance industry has made many larger insurers wary of offering customized coverage. And as your clients may have noticed, factors such as cybersecurity, climate-related issues, and the COVID-19 pandemic have only made matters worse.

This is where captive insurance comes in. As the commercial insurance market becomes increasingly reluctant to provide custom coverage, more and more companies in different areas of business and industry are looking toward single-parent captive agencies to address their risk management concerns.

In particular, construction, healthcare, and finance organizations are considering abandoning traditional insurance options in favor of captive insurance. We’ve already seen signs of this migration in 2021. This trend toward greater reliance on captive insurance is expected to continue in 2022.

Issues driving insurance trends

The issues that will likely continue to drive insurance trends in 2022 are weather events, service disruptions and outages, data breaches, and the COVID-19 pandemic. These have compelled many businesses to set up captive insurance programs in the past few years, and we will likely see more companies following suit in the coming years.

Key trends to watch out for in 2022

Here are some of the most notable developments to expect over the coming year:

Family offices. These aren’t necessarily family-owned businesses but holding firms that own many different assets. They are typically highly-structured businesses, such as real estate companies. Most have large workforces with various departments managed by individual leadership teams.

In recent years, family offices have found it increasingly difficult to obtain coverage that adequately handles the needs of each of their business holdings. Therefore, many have begun exploring captive insurance as an alternative to traditional insurance options. More and more of these organizations will turn to captive programs’ custom risk management solutions in the coming months.

Construction firms. Firms in the construction industry are among the earliest adopters of captive insurance. This insurance model is ideally suited to the needs of construction firms, given the third-party risks inherent in the industry. Captive insurance will continue to be useful for dealing with subcontractors and managing safety risks. More firms will also turn to this insurance model for cost-effective solutions for owner- and contractor-controlled insurance and defects and rework risk coverage.

Healthcare organizations. Captive insurance will also continue to benefit healthcare organizations, particularly those in the assisted living and nursing care sectors. For these industries, it is vital to have enhanced coverage for professional liability and malpractice risks that could lead to class-action lawsuits.

The main challenge facing firms in these industries is the high-profile and greater public visibility of lawsuits. They may also be liable for large settlements, making traditional insurers wary of providing sufficient coverage. And with the COVID-19 pandemic placing assisted living and nursing care facilities under increased scrutiny, many are expected to turn to captive insurance instead of traditional insurance providers.

Architectural and engineering firms. As engineering firms are under increased pressure to speed up projects and reduce costs, many are finding traditional insurers unwilling‒or unable‒to meet their needs. Many companies are also finding it more difficult to deliver the expected results when faced with extreme and unpredictable weather conditions.

Engineers servicing municipal clients have their own challenges to deal with. As the demand increases for experts who can operate sewer and water treatment facilities, many face new risks in the design, building, and operational aspects of their jobs.

Because few insurance firms address these concerns, engineering and architectural firms will have to turn to captive insurance to provide alternative solutions. In 2022, we can expect more municipal engineers to establish self-funded captive programs that address their specific requirements before they accept these types of projects.

The bottom-line

Many industry observers and analysts expect the commercial insurance market to stabilize over the next several years. And with federal income tax rules subject to change in the future, commercial insurance could still be a viable option for firms considering making the shift to captive insurance.

With the constant evolution of the commercial insurance market being what it is, the market will likely be as costly and restrictive as it is presently. This will probably compel many more companies to turn to captive insurance instead of traditional coverage. And given the challenges inherent in getting bespoke insurance, we will likely see even more vigorous expansion of the captive insurance market in 2022 and beyond.

About Caitlin Morgan Captive Services

Caitlin Morgan Captive Services provides clients with captive insurance solutions supported by years of experience in establishing the successful formation and implementation of a wide range of captives. To learn more about how we can help you, please contact us at (855) 975-4949.