Q&A: Dan Towle on the 2023 captive landscape

Dan Towle, president of the Captive Insurance Companies Association (CICA), speaks to Captive Review ahead of the upcoming CICA International Conference about global captive insurance conditions and o­ffers advice to current and prospective captive owners for the year ahead


Captive Review (CR): What were the main trends affecting captive growth in 2022?

Dan Towle (DT): Businesses were dealing with the hard market, rising premiums in the commercial market and ongoing business disruptions. Add that to recovery from the Covid-19 pandemic, volatile financial markets and the war in Ukraine, and you have added all the ingredients that drive captive formation and expansion. The combined effect provided the ideal opportunity for captive insurance to shine. As a result, captives have emerged as a valuable risk management strategy with the ability to provide flexible, long-term solutions and are now at the forefront of more risk management strategies than ever.

CR: Are these trends the same that will affect captive growth this year?

DT: When you look at the great lineup of education sessions for our 2023 CICA International Conference, it’s clear the trends are carrying forward. Experts from across the captive industry are focused on sharing ideas to optimise captive insurance solutions. We have sessions on using creative captive insurance strategies to address disruption and support innovation, how to address a myriad of inflation-related impacts within captive structures, capitalising on efficiencies gained when forming a captive, how to negotiate and build credibility with your captive markets, and identifying innovative solutions for cyber coverage in your captive.

CR: What are the emerging risks where captives can provide a valuable solution?

DT: Captives are dealing with a host of emerging and evolving risks such as cyber which affects a significant number of businesses. By putting cyber risk into a captive insurance programme, companies are likely to see reduced costs and other benefits. Supply chain and business interruption risks remain top of mind. We are also seeing an increased emphasis on directors’ and officers’ liability insurance risks.

CR: What should captive professionals be doing to be of most value to their captive clients in 2023?

DT: Be ready for change. Disruption is happening at a faster pace than ever before. It is not just a hard market; we have multiple factors such as record-high inflation and some of the most significant supply chain disruptions we have ever experienced. Keep an eye on these trends and be prepared to adapt your captive’s strategy accordingly. Next is continually educating yourself and your stakeholders so you can be prepared to offer creative captive insurance solutions and they are prepared to support the strategic use of captives to manage organisational risks and support business objectives.

CR: What actions should captive domicile regulators be taking to encourage captive uptake and make the challenges to captive owners easier to face?

DT: It is not the regulator’s role to encourage captive uptake. However, it is their role to answer questions and educate companies who are considering forming captives. Regulators focus on licensing quality, well-designed captive insurance companies that remain solvent and fulfil the needs of their owners. Captive domiciles focus on creating a supportive environment for captives domiciled in their location which supports captive growth.

CR: How do you think the uptake of captive solutions might develop this year in different regions such as in the US, Bermuda and the Caribbean, Europe, as well as emerging Asia Pacific?

DT: All risk managers, regardless of where they are based geographically, are looking for the benefits that captive insurance solutions provide. As a result, service providers and domiciles are seeing more inquiries regarding captive formations. New activity remains largely focused on business from North America, with some additional activity from Latin America, while interest from the Asia Pacific region has increased, as has the range of coverages. Bermuda and the Cayman Islands have seen renewed growth in the number of new captive insurance licences issued. I expect growth in the domiciles that continue to invest in the captive sector.

CR: We are seeing a lot of captive growth, but what are the signs these are being built for the long term?

DT: When conducting their feasibility studies, organisations are taking the time to understand how the captive can add value and they are getting buy-in from their stakeholders. They are evaluating how a captive can fit into their overall insurance planning. As a result, captives have evolved from being driven by an urgent need for a hard market solution to being an essential piece of an organisation’s overall risk management strategy.

CR: With rate raises starting to soften, is there a danger captive owners could be tempted back into commercial markets? What are the reasons keeping them from doing this?

DT: History has proven that once people understand the value of captive insurance, the premium may shift between lines of coverage but it stays in the captive, even if the market softens. As such, I do not think captive owners will see as much resistance to the continued use of captives as before. Add to that the fact risk managers have long memories and, if we have learned anything from these pandemic years, it is that uncertainty is going to be with us for a long while. We have to be prepared to deal with a host of uncertainties. Using a captive and having your management understand its value is vital to the long-term success of the insurance company.

CR: What piece of advice would you give to prospective owners thinking of forming a captive? When does it make sense for your business to take this option?

DT: From my experience, some of the best captives are formed during soft market times when you don’t have an urgent need. However, regardless of the market conditions, you need to make sure you have a clear long-term goal, your strategy is well-planned and well-documented, and you have the right teams in place. Start by educating yourself. It’s not going to happen overnight. Attending the CICA Conference or other industry conferences is a good way to learn from others who have already been through the process. Conferences are also a good place to find the right business partners. Next, do your due diligence. It is important all stakeholders understand the reasons and benefits of forming a captive. You need your stakeholders to buy into the captive as a long-term risk management solution. Find the right talent. We’re experiencing significant shifts in knowledge and skills as senior leaders leave the industry and take their knowledge with them. We’re also seeing increased demand for new skills and new strategies to deal with today’s host of emerging risks. Pay attention to your talent pipeline and make sure you are bringing in and developing the talent you need to support your captive insurance programmes. CICA’s NEXTGen and Amplify Women programmes can be vital resources to connect women and young professionals with peers and career development opportunities that will make them even more valuable to your organisation.

12 August 2024
5-6 November 2025

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