Elizabeth Steinman, managing director of risk finance & captive consulting for the Americas at Aon, is probably involved in twice the number of captive feasibility studies than she was four years ago, with many clients revisiting the captive concept for the second time.
“The last few years have just been really busy,” she told Captive Intelligence.
Steinman said a lot of the studies she is involved in are refresh studies, occurring when the broker has already provided a captive feasibility study for a company a few years prior.
“Now they are coming back and realising they need it,” she said. “We then refreshed that study and the majority of them are moving forward with the captive formation.”
Steinman said the increase in studies is largely because each year for around the past five, there has been an “increase on top of an increase” when it comes to commercial market pricing.
“It’s very frustrating, and our clients feel is unwarranted,” she added.
“They’re also getting their terms and conditions tightened. Some are being required to take higher deductibles, and some markets are leaving the property arena altogether.”
Steinman said that when terms and conditions are being taken away, the captive can write policies to fill the gaps.
“It can also fill in parts of the tower where they feel it is out of whack with the rest of the tower pricing wise, or if they cannot fill the tower because of capacity issues,” she said.
Steinman said that if a company forms a captive regardless of what happens at renewal, they are then in a good position to be “nimble and pivot” to either add coverage or do what they need to do in order to make their renewal “look like they want it to”.
She also said that a client might be “very active” in utilising the captive for a few years, but then they might have a year where they don’t write any new business because they “just don’t need it”.
“Then the business that is in there is still churning along, but then it is there when you need it, and you will inevitably need it it given the fluctuations in the insurance market.”
Steinman said some of the first risks US clients put into a captive include workers’ compensation, general liability, and auto liability.
“They have the more predictable losses, and you get good risk diversification, especially if you are going to put in something like cyber or property, which have a completely different risk profile,” she explained.
Steinman said medical stop-loss is another popular line that works well for clients who have good loss experience.
“We find that if they take a portion or all of the medical stop-loss risk, they can experience savings by not paying premium to the market, and instead just paying for the claims that fall within that layer,” she said.
When it comes to domicile selection, Steinman said she starts by having a discussion with clients to “narrow down the playing field”.
“We come up with around six domiciles based on their objectives, and what’s important to them,” she said.
She highlighted that Aon has a detailed matrix where the broker scores each domicile and their different attributes.
“We also have a client score and that is in importance order, so we take into account what they want,” she said.
The top domiciles usually end up as the preferred choice.
“Other domiciles of choice tend to be the domicile where the parent company is based for potential tax reasons or convenience,” she added.