If there is one lesson for business owners in the wake of the coronavirus pandemic, it is that unexpected risks call for innovative insurance solutions. Captive insurance – already a viable alternative to traditional insurance markets – saw increased acceptance from business owners across industries. Captives provide a range of benefits in protecting business assets from the unusual risk exposures faced during COVID’s grip on world economies.
Captive insurance is capable of many aspects when it comes to addressing risk exposures. This insurance has provided companies with unusual or unexpected risk profiles significant risk management benefits for over a century, but it was not until the COVID pandemic that the real benefits stood out to business owners. Owing to their nature as a viable self-insurance option, captives are typically designed with flexibility, allowing the insurance to adjust to emerging risks or market conditions. In the healthcare sector, several captives adapted to changing risk exposures by lowering premiums. Because certain medical procedures were not available during the pandemic, risk shrank considerably, leading to a premium surplus. Policyholders were eligible for rebates in those cases, freeing up funds to meet other pandemic-related business challenges.
Captive insurance entities also saw new opportunities as the COVID pandemic tightened its grip on traditional insurance markets. As those markets hardened, captives reevaluated risk management programs, implemented the development of new programs, and added lines for their insureds. In many cases, captives experienced significant growth as more companies sought reliable and personalized risk protection. This is especially true of captive insurance groups that offer business interruption coverage. Many businesses were forced to shutter operations or curtail services as a result of pandemic quarantine and lockdown orders. These businesses often struggled financially; with the enhanced protection of captive-based business interruption insurance, insureds were able to weather the economic downturns.
Growth can also come from unexpected opportunities. For example, the incoming Presidential administration may add regulations to environmental or corporate governance practices, leading to issues with compliance. Captives may be able to add programs or coverages to reflect these new business risks, helping to create a robust blanket of protection for their members.
Growth in captive insurance has given captive entities the capital to explore emerging opportunities. With the capacity to capitalize on growth strategies, program development has been able to be built over time. Taking advantage of emerging opportunities is dependent on risk control. In other words, companies must carefully evaluate their current risk management practices, factoring in their ability to control both the severity and frequency of expected risk exposures. By understanding risk profiles, companies can determine whether adding programs or coverages to their captive insurance portfolio makes financial sense.
Industry analysts suggest that captive insurance represented the leading risk management option during the pandemic; now that more companies have experienced the value inherent in self-insurance solutions, captives will only continue to grow.
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.