The “fragmentation” of insurance supply globally is adding greater value to captive strategies as insureds look for more flexibility in their risk transfer options and sources of capital, according to Joe Peiser, global CEO of Aon Commercial Risk.
Peiser, who’s role oversees all commercial lines of insurance at Aon, all segments and industries, as well as the captive consulting and management business, was speaking on the latest episode of the Global Captive Podcast, recorded at the Vermont Captive Insurance Association (VCIA) conference earlier this month.
He said captives is “absolutely” an important part of the business for the global broker, as more clients are using them as a “critical” part of their risk financing strategies.
“What I have seen over the past five, six, seven years is a greater awareness among companies’ executive levels – C-Suites, CEOs, CFOs – about awareness of volatility, awareness of the insurance programmes their companies have, the risk financing programmes,” Peiser explained.
“The reason for that attention is because there has been an overall inflation of loss activity in our business. That’s true globally, but it is pronounced in the United States.”
That awareness is increasing demand, with more companies and their executives looking for modern decision-making tools.
“They want to know what is the trade-off between buying insurance and retaining risk, and when it comes to retaining risk, they want to know what’s the most effective way to retain that risk, what’s the most strategic way to retain that risk? And more and more often the answer is a captive,” he added.
Peiser said a captive provides a “rigorous way to measure self-insurance” and flexibility in accessing different types of risk transfer supply at a time when the insurance supply is fragmenting.
“The volatility that organisations face… That same volatility is affecting insurers’ portfolios,” he explained.
“And while they’re used to volatility, that’s the business they’re in, it’s become so unpredictable because we don’t know where the next big liability loss is going to happen.
“We used to be able to count on cat losses in Florida and California, but now we’re seeing wildfires all over Europe and we’re seeing freezes in Texas. The result is that insurers are taking smaller and smaller bets on any one client, any one insured.
“As we see rising demand for risk transfer, particularly catastrophic levels, we’re seeing a fragmentation of the supply of risk transfer. So because of that, we have to find new ways to access different forms of capital, and it’s not coming in the traditional ways, it’s coming in as insurance linked securities, it’s coming as parametrics.
“A captive is a great way to access that type of capital. So, it’s not only an important risk retention tool, it’s also a very strategic risk financing tool.”
Peiser also discussed the ongoing “transformation” of Aon’s captive business, including better utilisation of technology to improve its captive management operations to “free up” its captive professionals to have more strategic conversations with clients.
Captive Intelligence reported in December that Ciarán Healy would be taking over leadership of Aon’s global captive business on 1 January, 2025 and work continues to reorganise and refocus the unit.
Peiser is also seeing a growing demand for captive resources within Aon more broadly, particularly for those leaders that work with the larger clients.
“What I see within Aon is all of our leaders who are dealing with larger and larger clients clamouring for more captive resources, more strategic thinking in our captive group and really linking that captive group into other parts of Aon that are dealing with the issues that I mentioned earlier,” he added.
“We created a construct at Aon called Risk Capital. that’s our commercial risk team that I lead, and our reinsurance team. And the reason we created that is because we want to access all these different forms of capital for our clients and captives are right at the centre of that.”
Listen to the full, exclusive interview with Joe Peiser, global CEO of Aon Commercial Risk, on the Global Captive Podcast here, or on any podcast platform. Just search for ‘Global Captive Podcast’.