The group captive concept has become so popular in the United States that more brokers and sub brokers are having to set up their own alternative offering to avoid being left behind, according to Rob Collins, captive segment leader and managing director at Guy Carpenter.
Speaking on the latest episode of the Global Captive Podcast alongside Linda Johnson, executive vice president and chief underwriting officer at Old Republic Risk Management, Collins explained what had been driving booming group captive utilisation in recent years.
“The growth in group captives is driven by the insured; the business owner’s desire to control their insurance costs and outcomes,” Collins said.
“Thirty-five to 40 years ago, this product was new to the market and was really only available to the largest buyers, the most sophisticated buyers.
“Now that’s not the case any longer. The idea of controlling your insurance outcome by commitment to safety and being able to have a stable, reliable product – it’s not always the cheapest product, but it’s something that provides tailored, customised coverages and has consistent pricing over the long term, and I think that’s really attractive to any risk manager or any CFO.”
Johnson pointed out that another area of significant growth for group captives has been the expansion into new lines of insurance, away from the traditional high frequency, low severity profiles.
“Now, in this marketplace, you are starting to see coverages that are much more severity driven, which is creating a new dynamic within the group captive market,” she said.
“We’re finding because of the sophistication of the captive consultants and the customers that are coming into this marketplace, that severity driven risks can equally be handled within the group captive models, which I find really fascinating. You wouldn’t have convinced me 30 years ago that that was a good place for them to be.”
The barrier to entry for group captive members has also been steadily decreasing, while the range in size of insurance buyers participating is broadening.
“We see many companies that are spending as low as $75,000 or a $100,000 on their casualty insurance programmes going into group captives,” Collins added.
“They’re doing that because the barriers to entry are very low these days. The capital contribution from them is relatively small, so they can leverage the stability of a group.
“If you have 50, or 100 or 300 members in a group captive, there’s a lot of stability and buying power that comes with that that they can tap into immediately with a pretty low barrier of entry from a capital perspective. Same with collateral; the collateral can be spread out and be manageable over a period of time.”
Guy Carpenter works with group captives on reinsurance buying and legacy solutions, while Old Republic provides fronting services to the growing marketplace.
Collins observed that the increasingly mainstream nature of group captives is only going to accelerate as more brokers spot the opportunity while seeing clients move into the strategy – with or without them.
The danger for brokers not embracing group captives is that they are left behind.
“The large captive managers that have driven the growth and product development within group captives over the last 30 to 40 years, they’ve relied on a pretty broad distribution network of brokers to feed business into their groups,” Collins added.
“What we’re seeing now, which is a little bit of a shift, is those other brokers, sub brokers, starting their own group captive division.
“So they’re looking to try to capture that business and control it themselves within their own agency or broker network, which is a different wrinkle. That just speaks to the fact that every broker needs to have an alternative solution for their customers, and if they don’t, they will either be left behind or be sharing their revenue – which is obviously precious to them – with other brokers and so I think that that will continue to fuel growth as well.
“We’re seeing new startups and we’re getting calls all the time from some of the brokers that have just been sub brokers in this space now looking to control that element of solution for their clients.”
Listen to the full episode and discussion on group captives on the Global Captive Podcast here, or on any podcast app. Just search for ‘Global Captive Podcast’.