Too Many Risks & Too Few Captives
As is our annual tradition, members of CIC Services, LLC attended the Captive Insurance Companies Association (CICA) International Conference in Scottsdale, Arizona March 6-8, 2016. CICA is the world’s largest domicile neutral captive insurance association. The conference includes a strong legal and regulatory update, covers trends in the industry, and provides excellent case studies for the formation and operation of captive insurance companies. The conference also places significant emphasis on Enterprise Risk Management (ERM).
There is a false perception that the captive industry is growing too rapidly. And while the industry has experienced steady growth, it is simply untrue to suggest the increase in captive insurance programs is alarming. If anything, the captive industry should be growing faster than it currently is because the world and modern business climate is increasingly uncertain, with new threats emerging regularly. In reality, there are “Too Many Risks & Too Few Captives!”
One of the sessions at the CICA Conference was titled “Big Thoughts from CICA’s 2016 Market Study Participants.” Not surprisingly, CICA focuses not only on captives, but on many other facets of risk management for its members. This session included a summary of a large-scale survey of CICA members, their utilization of their captive insurance company (ies) and views on risk management and emerging risks. It also included a high-level discussion by CICA Board Members and executives at some of the largest insurers and actuarial firms on the globe, including Marsh, Aon, Willis towers Watson and Milliman.
CICA Study Results
First, the CICA study demonstrated to tremendous versatility of captive insurance companies. As an example, consider the wide array of industries served by captives in the chart below.
The next three charts outline threats that concern CICA members. Notice Cyber, Regulation (or regulatory actions), Terrorism, Weather and Political Unrest in the “Hot Topics” list. Chart 2 outlines Non-Traditional (or Non-Core) risks currently insured by CICA members. Keep in mind that many of these insurers are large corporations. Finally, Chart 3 details coverages CICA members plan to insure through their captives in the next 12-24 months. Note that this list includes Cyber, Product Warranty, Product Recall, Specialty Risk, Credit Risk, TRIA (Terrorism) and Life Insurance on Employees.
AON’s Global Risk Management Survey
While the CICA Survey Top Risks presented during this educational session felt daunting, the presentation of Aon’s Global Risk Management Survey was even more daunting, validating my assertion that there are “Too Many Risks and Too Few Captives.” The next four charts include:
- Top 10 Risks (That Keep CFOs and Risk Managers Up at Night)
- Top 10 Insured Risks
- Projected Top 10 Risks in the Next 5 Years
- Ranking of 53 Risks Businesses Face
As can be seen, the stakes are high for businesses (both large and small) and risks abound in the 21st century. For many businesses – including many small and mid-market companies – a traditional commercial insurance alone approach leaves a business at a marked disadvantage. Successful business owners should consider Enterprise Risk Management and ownership of a Captive Insurance Company to ensure the business survives and thrives.