CIC Services, LLC recently attended the Captive Insurance Companies Association (CICA) Conference in Palm Springs, California as part of our on-going efforts to stay abreast of shifting trends, strategies and regulations in the captive insurance industry. The conference was thematically focused on the future of the captive insurance industry. We attended multiple presentations and workshops covering a wide range of topics, including demographic trends, risk management, medical malpractice, preparing witnesses in a lawsuit, reinsurance, captive investments, regulatory trends, and the creative employment of captive insurance companies. Stepping back from all of the detailed and educational presentations, three large themes emerged.
CICA Conference Themes
1. Insurance costs will increase in the very near future.
2. The number of captive insurance companies will continue to grow significantly.
3. Risk managers and captive insurance company owners will look for more creative ways to utilize their captive(s) to increase risk management flexibility. Expect risk managers to write broader lines of coverage through their captives.
First – Insurance Costs
Insurance costs (Healthcare and P&C) are projected to rise in the very near future. Rising health insurance costs will be fueled by the full implementation of ObamaCare. Panelists at the CICA conference also expected medical malpractice insurance costs to rise as well “due to the massive increase in the number of patients who will have access to healthcare… while no meaningful reforms have been put into place to curb lawsuits.”
Swiss Re’s Chief Economist for North America, Thomas Holzheu spoke about the coming pressure on P&C insurance premiums. He noted that the P&C market has been “soft” for a long period of time as insurers have been forced to compete more aggressively for business. However, major insurance carrier reserves are somewhat depleted as a result of 1) high claims and catastrophes in recent years and 2) very low returns on investment for capital reserves during recent years. Holzheu expects premiums to rise as underwriters focus on bolstering insurance company reserves.
Second – Continued Growth of Captive Insurance Market
Conference panelists and speakers in multiple sessions were in agreement that the captive insurance market would continue to grow in the foreseeable future. The global economy added 250 new captives, and the U.S market added 159 new captives in 2012. These numbers are expected to increase significantly in 2013. Captive insurance companies give their parent companies flexibility in developing their risk management strategies. As the industry faces a hardening in the insurance markets, experts at the conference expected to see more small and mid-size businesses making the choice to own their own insurance company. This was a bit of a sea change from past conferences we have attended. In fact, this was the first large industry conference that we have attended that had sessions dedicated to small captive insurance companies – defined as companies that have annual policy premiums below $1.2 million. This trend is also fueled by the increasing number of U.S. states and off-shore domiciles competing to attract new captives. This competition drives down costs, making it more cost effective for small and mid-size businesses to set up their own captive insurance company. As captive managers at the conference, we had representatives from multiple domiciles vying for our attention.
Third – Broadened Lines of Coverage by Captives
With the expectation that the insurance markets will harden and regulations will continue to increase, conference speakers and panelists anticipated that captive insurance companies will broaden their lines of coverage. A common trend discussed at the conference was that of similar companies pooling risk together in a captive insurance company, particularly for lines of coverage that were very expensive (for example, hurricanes and cyclones in coastal cities and sexual harassment for non-profits and businesses working with children). Captives give businesses risk management flexibility, and this flexibility can be applied to a variety of challenges including healthcare, worker’s comp and even “uninsurable” risks.
Even now, captives are predominately owned by large companies, but the landscape is steadily changing. Large companies don’t have a monopoly on experiencing the benefits of captive ownership. Small businesses can experience the same benefits by forming and owning their own captive insurance companies.
CIC Services, LLC manages over 20 captive insurance companies. Our firm has worked with business owners seeking greater control over risk management, insurance costs, regulations and taxes. Contact us to discuss if owning your own insurance company is the right move for your business.