In this GCP Short, produced in partnership with EY’s Global Captive Network, Richard is joined by Paul Phillips, Partner and Global Captive Network Co-Leader at EY, and Lisa Wall, Executive Vice President and Risk Finance Practice Leader at Lockton, for a fascinating 18-minute conversation.
Recorded at the CICA International Conference in Palm Springs, in Marsh, Richard, Paul and Lisa debate whether the power of captives remain undervalued, if they should no longer be considered the ‘alternative market’ as they become more mainstream, how to push the envelope further with captive owners and what role self-insurance vehicles have in insuring ESG-related risks.
Airbnb is the latest corporate victim of Washington State’s Insurance Commissioner, Mike Kreidler, who has fined the technology company $20,000 for acting as an unauthorised insurer in Washington state.
The enforcement action, which also requires Airbnb to secure a surplus lines policy through a broker licensed in Washington by August 5, 2023, is in relation to the home-sharing platform’s Host Damage Protection (HDP) programme.
“Kreidler’s office opened its investigation based on the HDP program, which advertised $1 million in coverage for damages caused by a guest,” the regulator said in a statement.
“It was included with each booking as part of the company’s AirCover program, provided under a general liability policy with hosts covered as insureds.”
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The Office of the Insurance Commissioner (OIC) initially issued a Cease and Desist order on Airbnb on 7 February, ordering it to immediately cease from:
“(i) engaging in or transacting the unauthorized business of insurance in the state of Washington, (ii) seeking, pursuing, or obtaining any insurance or service contract business in the state of Washington, and (iii) soliciting Washington residents to induce them to purchase any travel insurance contract.”
Due to the complexity of the matter, the order was stayed on 15 February, effective from 6 February, with the OIC and Airbnb agreeing to “fully resolve this matter by entering into a compromise resolution”.
As part of the agreement with the OIC, Airbnb will now require its surplus lines broker that Washington State be treated as Airbnb’s “home state” for the policy “and will receive surplus lines premium tax on 100% of the Policy’s premium”. This will only be the case for hosts located in Washington State.
It is not stated whether Airbnb’s Hawaii-domiciled captive, Launa Insurance Company, Inc, is directly implicated in the rules breach, but it does play a role in some of the insurance programmes offered to hosts and users of the platform.
“We have a wholly-owned captive insurance subsidiary to manage the financial exposure related to our Host and Experiences liability insurance programs along with certain corporate insurance programs,” Airbnb said in a February SEC filing.
“Our captive insurance subsidiary is a party to certain reinsurance and indemnification arrangements that transfer a portion of the risk from our insurance providers to the captive insurance subsidiary, which could require us to pay out material amounts that may be in excess of our insurance reserves.”
As well as the captive, Airbnb also operates its own US insurance agency.
Kreidler became well known to the captive insurance industry in 2018 when he began targeting self-insurance subsidiaries owned by Washington-headquartered businesses, accusing them of being unauthorised thus insuring risk in the state illegally.
Microsoft, Costco, Alaska Airlines and Starbucks were among those corporates caught up in enforcement action before a legislative fix was landed upon in 2021.
Bill Fitzpatrick is senior vice president at Granite Management Ltd and an experienced international employee benefits and captive professional. He previously led Deutsche Post DHL’s corporate employee benefits programme from 2006 to 2022 before joining Granite in January 2023.
Captive-backed international employee benefits programmes have come a long way since the mid-1990s. Granite Management’s Bill Fitzpatrick outlines that journey and what comes next.
During the mid-1990’s, a few select companies were looking to circumvent the traditional Employee Benefit pooling route, preferring a means long-established within the property & casualty insurance industry; the reinsurance of employee benefits into their captive.
The reasons were relatively straight forward; to eliminate the frictional costs that are associated with writing employee benefits cover through a locally insured or pooled arrangement, enhanced quarterly reporting of claims versus the current annualized option, and to diversify the risk within the captive.
Towards the later stages of the 1990s, two European companies were significantly motivated by the saving proposition captives presented and began reinsuring EB coverage into their respective programmes.
Initially, the insurance networks struggled with the concept of meeting risk transfer and the movement of funds requirements; being more willing to emphasize pooling as the best construct for the aggregation of multinational EB plans.
The networks quickly learned that captives can bring substantial business into their portfolio and as long as service levels remained commensurate with that of local market expectations, the business retention levels exceeded that of any other funding methodology (locally underwritten or pooling).
This scenario was attributable to the captive’s breakeven pricing approach being applied, eliminating the need to re-market plans in order to secure better terms at lower premium levels.
The expansion of companies and insurer networks envisaging the placement of EB captive business within their respective portfolios expanded quickly, as multinationals realised that such a mechanism allowed for the greatest flexibility in terms of pricing and plan design, combined with the ability to modify policy provisions to meet the unique strategic needs of the parent company.
With increased control over the underwriting process and an enhanced understanding of annual claims trends, multinationals began insisting the insurer networks expand the availability of data and analytics needed to price such programmes.
Networks were asked to provide more detailed information in the form of ICD10 (International Classification of Diseases) data for the purposes of normalizing data and defining the specific claims being incurred; leading to better prevention and mitigation strategies that could be applied to further manage long-term costs.
As the multinationals’ underwriting abilities became more refined and comprehensive, they then convinced consultants to provide medical trend rates by country, allowing for a greater degree of accuracy when pricing local plans.
Such changes allowed multinationals to launch unique and tailored prevention and mitigation strategies within country medical programmes.
Since that time, the global market has seen similar developments in the identification and management of disability claims with many insurers utilizing an early intervention process emphasizing a focus on musculoskeletal and mental health conditions; due to the subjective nature of such conditions.
Such a change was essential, as insurer claims data determined that individuals who remain out of work for six months or more have a far less chance of returning to gainful employment compared to those undergoing early intervention by vendors specialized in dealing with such conditions.
Insurers are now also questioning public agencies (Western Europe) that determine the level and seriousness of the conditions in question, no longer relying on the state’s determination as to the level of disability use to determine eligibility for state benefits.
Present and future
If we fast forward to 2023, many companies have now been utilizing a captive for employee benefits for 15 years or more and by doing so, have built a significant breadth of data allowing for the application of multi-year underwriting and actuarial analyses on the value that such a programme brings to the parent company.
Most companies will confirm a savings of 10-25% versus that of a locally insured plan; before factoring any potential savings from claim prevention and mitigation opportunities.
To provide a long-term perspective on the savings opportunities an EB captive brings to companies, note the following example:
If an EB captive reinsured €50m effective on Jan. 1, 2023, assuming an annual 10% medical trend rate and assuming a savings of 16% per year; a company would exhibit a total aggregated savings versus locally insured cover of €127.5m (assumes breakeven underwriting and spread of countries & multiple lines of cover e.g. life, accident, disability & medical) over a 10 year timeframe.
In the coming years, most companies are/will be challenged by EB premiums increasing at a significant pace. This is as a result of high medical inflation, an aging workforce and an increase in chronic diseases. As companies look to control such costs, their reliance will resort to already established measures:
Continued employer funding of increased premiums
Cost shift greater premium amounts to employees
Increased costs to employees via higher deductibles and/or coinsurance amounts
Reduced coverage through contract modifications
Leveraging hospitals and physicians pricing models
Greater focus on improving the health of employees and their dependents
In most cases, employers will need to apply the above options in varying degrees by country to secure greater control over employee benefit costs.
Based on the above, it is easy to understand why companies must target the lowest based premium and leverage the financing, plan design and prevention/mitigation opportunities to fully realise both the short and long-term opportunity costs.
With the global competition on talent in full swing, many companies are looking to capitalize on their “Diversity, Equity and Inclusion” strategies across all reaches of their respective organisations.
While DE&I overlaps multi-functional lines within HR, companies are realising the opportunities presented within captives by normalizing plan designs across both geographical and cultural boundaries; presenting a seamless array of coverages normally excluded or limited within a given country.
The overarching aim of an international programme is to ensure a consistent level of cover globally, allowing for the selection of cover a company feels that is best suited for their employee population, ultimately enriching the DE&I strategical outcomes.
In summary, considering the cost implications that company’s face with future EB premiums and the goal to attract and retain diverse topmost talent, those companies that strive to transcend the premium and claims management cost curve will demonstrate a significant strategical advantage over their peers and competitors.
Unfortunately, those companies that delay a proactive approach to the financing and management will face an increasing spiral of costs year on year.
Jessica Powell, who initially joined Aon Cayman post-graduation as an account manager, has been promoted to senior vice president – Captives.
After first working at the captive manager as a trainee, Powell took a sabbatical to pursue an Aon Cayman-sponsored MBA with Temple University in 2010, before returning in 2011.
Aon Cayman said that during the intervening years, Powell has grown through the firm to become a trusted advisor to clients and colleagues alike.
“Jessica is generous with her time and expertise and her incredible work ethic and dedication are an example to us all,” said Howard Byrne, managing director at Aon Cayman.
“This promotion is most deserved and we are so lucky to have Jessica on our team. Many congratulations.”
Hard market conditions is one of the main drivers behind the decision by Ascot US to launch a captives unit, Mark Totolos, senior vice president for captive solutions at Ascot US, told Captive Intelligence.
Ascot Group is an insurance and reinsurance company, with Ascot US appointing Totolos to the newly created role last month. He joined from Skyward Specialty Insurance where he was head of captives and programmes.
“The main reason we are starting up Captive Solutions is that the hard market environment continues to push insureds into the alternative market as more realise that risk management can have a positive financial impact to their business,” he said.
Totolos said the industry has been trending in the direction of greater captive utilisation for the last three years as a result of the hard market.
“It’s a great time to lean in because rates don’t seem like they’re going to start coming down anytime soon and captives can solve some of that instability,” he said.
Totolos said that clients are increasingly learning there is a financial impact by taking on risk retention, whether that be on the tax or premium side.
“You’re not relying on an insurance company to take underwriting profit, now you’re sharing the underwriting profit based on your own results,” he added.
Totolos indicated that the market is seeing an increasing number of consultants looking at building property captives for their clients.
“They’re a bit more difficult because of the vertical capacity, but those insureds are finding out that if they take more risks, they can reduce their overall premium while receiving potential underwriting and investment income,” he said.
Although being US focused, Totolos said Ascot will also be open to working with captives in domiciles outside of the US.
Totolos also noted that Ascot has its own captive domiciled in Tennessee, which is currently being used by the company’s workers compensation unit.
He said in the future, Ascot’s Tennessee-domiciled captive could potentially be used as a rent-a-cell unit for the company’s clients.
“Having the ability to utilise our Tennessee domiciled captive to rent a cell is a big plus for our partners that may not have access to captive options,” he said.
Totolos told Captive Intelligence that Ascot is looking to have a full launch of its Captives Solutions unit in Q1 2024.
“We are currently getting all the filings that we need completed and building the infrastructure in the background,” he said.
“I want to make sure we have the capabilities before we start bringing in additional staff.”
FORA, 35-41 Folgate Street, London E1 6BX. 15 October, 2025
The UK Captive Briefing, produced by Captive Intelligence, will provide London market and captive professionals with expert opinion and insight into why captives can benefit the wider commercial marketplace, how the UK can compete and what is required by the regulator to facilitate it.
Richard Cutcher, Editor at Captive Intelligence will be attending. Meet him there.Nick Morgan, Commercial Director at Captive Intelligence will be attending. Meet him there.Luke Harrison, Senior Reporter at Captive Intelligence will be attending. Meet him there.Lucy Kingston, Business Development Executive at Captive Intelligence will be attending. Meet her there.
Held on the eve of the European Captive Forum in Luxemborug, the Captive Mixer is a great meeting place for anyone working with or in captive insurance or employee benefits. It is free to attend, but spaces are limited so make sure you are registered.
Richard Cutcher, Editor at Captive Intelligence will be attending. Meet him there.Nick Morgan, Commercial Director at Captive Intelligence will be attending. Meet him there.Luke Harrison, Senior Reporter at Captive Intelligence will be attending. Meet him there.Lucy Kingston, Business Development Executive at Captive Intelligence will be attending. Meet her there.
Designed for the sophisticated insurance buyer, Captive Congress – Europe brings together captive owners and prospects from across the continent to discuss advanced captive and corporate risk financing topics.
Richard Cutcher, Editor at Captive Intelligence will be attending. Meet him there.Nick Morgan, Commercial Director at Captive Intelligence will be attending. Meet him there.Luke Harrison, Senior Reporter at Captive Intelligence will be attending. Meet him there.
The number of Marsh managed captives writing cyber increased by 75% between 2020 and 2022, according to a recent Marsh US Cyber Purchasing Trends report.
“Captives have become an incredibly useful tool for organisations over the last couple years as they’ve grappled with difficult cyber market conditions,” said Ellen Charnley, president of Marsh Captive Solutions.
“In some cases, organisations are funding portions of their cyber risk into a single parent captive such as a deductible or a self-insured retention, in other instances they are using a captive for quota share arrangements or to access reinsurance.”
Average US cyber rate increases continue to decline from December 2021 highs: 17.1% (Dec. 2022) vs. 133% (Dec. 2021).
The Report also highlighted that after slowing in 2022 compared to 2021, ransomware-related claims rose 77% in the first quarter of 2023 compared to the fourth quarter of 2022.
The Federation of European Risk Management Associations (FERMA) recently called upon the insurance industry to adopt a more collaborative approach to cyber insurance which balances the risk appetite of the market with the coverage requirements of corporate buyers.
In order to combat the cyber capacity issue, Marsh revealed at RISKWORLD that it will be launching a special purpose cyber reinsurance facility in the coming weeks, which will be made available to captive owners seeking additional cyber capacity.
Captive intelligence recently published a long-read detailing how a lack of capacity and high pricing in the cyber market are resulting in increasing captive utilisation for cyber risk.
Greg Eskins, US cyber product Leader at Mash, said: “The increase in the number of organisations purchasing coverage is a positive trend, reinforcing the view that insurance is an important part of a holistic cyber risk management strategy.
“Buyer uncertainty still remains however, namely around war, cyber operations, and systemic/catastrophic risk exclusions, which we continue to tackle on behalf of clients,” he added.
“Cyber insurance products need to resonate most with those who invest in cyber insurance products to protect against strategic risks.”
French captive scene “booming”, at least two applications in
IFRIMA president lauds AMRAE’s lobbying efforts to push captive agenda
Spain, Italy, Germany and UK all at various stages of similar initiatives
Within EU, Solvency II remains a leveller but further reform still hoped for
The “outstanding achievement” of France’s risk management association AMRAE to secure legislation introducing a regulatory framework for captives has given impetus to efforts in Italy, Spain and Germany to lobby for more appropriate captive regimes.
Captive Intelligence reported in December that the new French regime could triple the captive number in the country and since then multinational dairy company Lactalis has received a captive licence from the French Prudential Supervision and Resolution Authority (ACPR).
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The potential introduction of protected cell companies (PCC) in Luxembourg would not be successful under the domicile’s current equalisation provision arrangements, according to Yannick Zigmann, managing director of Luxembourg-based Risk and Reinsurance Solutions (2RS).
Luxembourg’s equalisation provision is a key advantage and differentiator for the domicile, allowing captives to build up large reserves for future claims which are tax deductible, but it is unclear how this would work in a PCC structure.
Zigmann believes there would need to be more flexibility in how the equalisation provision is applied and utilised by cell companies, if at all.
“I am not sure PCCs will work with the equalisation provision system in Luxembourg,” he told Captive Intelligence.
“How can you share your part of your equalisation provision? I do not see how you can do it.
“Having a PCC is difficult, because this means there is something you do not have, you do not have the premium or you do not have the capital.”
Speaking in an interview on episode 82 of the Global Captive Podcast Valérie Scheepers, head of the non-life and reinsurance department at the Commissariat aux Assurances, said the onus was on industry to present a real business case so rules could then be developed.
Following Scheepers comments, some of the largest captive managers on the continent told Captive Intelligence that improved choice and competition by allowing protected cell companies (PCCs) in Luxembourg could create greater demand for cell solutions in Europe.
European captive demand
Zigmann indicated that although there is a lot of interest in captive utilisation in Europe, it can sometimes be difficult to convince the key stakeholders within a company that setting up a captive is a good course of action for the organisation.
“We sit beside the captive prospects during the feasibility study, and as all the other market players, we can tell them that we have good actuaries and, we are able to provide them a business plan for five years, seven years, whatever they want, but the real added value is to help them to convince the legal, tax, and finance departments, that we are on their side,” he said.
“This is the most difficult. Risk managers know exactly why they need a captive, but the tax guy doesn’t understand the rewards from having a captive, so you must be absolutely clear that it is not a risk.”
Zigmann told Captive Intelligence that 2RS currently manages 72 captives in Europe.
He said that one reason for the success of 2RS is because its business model allows it to go directly to prospective clients rather than using an intermediary.
Although 2RS is a subsidiary of Siaci Saint Honore Group, Zigmann stressed the two companies are separate entities when it comes to their day-to-day operations.
“Of course, legally our shareholder is a broker, but our activity has nothing to do with them,” he added.
The Federation of European Risk Management Associations (FERMA) has called upon the insurance industry to adopt a more collaborative approach to cyber insurance which balances the risk appetite of the market with the coverage requirements of corporate buyers.
FERMA has raised concerns that the cyber insurance market is evolving in isolation from the industries which it insures and wants to facilitate more constructive dialogue.
The Federation has proposed the development of a ‘COP-style’ annual cyber event, which would bring together key stakeholders to “develop and implement cyber resilience strategies of sufficient scope to address the myriad challenges of the digital age”.
Philippe Cotelle, vice president of FERMA and chair of its digital committee, said: “The corporate market recognises the criticality of cyber insurance as well as the need for the insurance sector to manage its potential exposure to cyber risk, particularly given the systemic risk it poses.
“However, it is also important to ensure that the product remains attractive and efficient for buyers.
“Recent decisions to restrict the scope of coverage have created uncertainty regarding the ability of insurance to meet the evolving cyber risk requirements of policyholders, and in particular for larger corporations which in France, for example, currently make up over 80% of the cyber premium.”
Typhaine Beaupérin, CEO and secretary general of FERMA, said: “To ensure the establishment of a robust and sustainable cyber insurance market for the long-term, it is imperative that all participants are contributing equally to its development.
“Improved dialogue will not only help ensure a product which is fit for purpose but also help build stronger relationships between cyber insurance buyers and the market itself.”
In order to combat capacity issues in the market, Marsh revealed at RISKWORLD that it will be launching a special purpose cyber reinsurance facility in the coming weeks, which will be made available to captive owners who are seeking additional cyber capacity.
Europe has also seen its first mutual formed for cyber with Mutual Insurance and Reinsurance for Information Systems (MIRIS) established in Brussels at the end of 2022.
MIRIS is domiciled in Belgium and will provide direct insurance. It can only accept members from the European Union and European Economic Area (EEA) with €25m of capacity being allocated for each member in its first two years of operation.
FERMA said that without more concerted dialogue between all parties, such as (re)insurers, brokers, buyers, regulators, and service providers, there is a risk that the appeal of the cyber product for corporate buyers may decline due to increasing exclusions and more restrictive coverage which are reducing coverage certainty.
“We need to approach cyber-related risks in a way that is commensurate with the size of the exposure that it creates,” Cotelle added.
“For many risk managers, cyberattacks pose one of the most significant and damaging threats to their organisation, while the systemic risk potential is recognised by all.
“By creating a COP-type event devoted to cyber resilience we can address this constantly evolving threat at the scale at which it needs to be addressed.”
Captive intelligence recently published a long-read detailing how a lack of capacity and high pricing in the cyber market are resulting in increasing captive utilisation for cyber risk.
