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Optimising Risk Management with Captive Insurance Innovation

Aon Australia

Snapshot

Many organisations are increasingly turning to captive insurance solutions due to the rising costs and selectivity of traditional insurance markets.
Due to insurers focusing on profitability and being more selective about the risks they cover, companies are seeking innovative and flexible captive insurance solutions to navigate market cycles and control risk outcomes.
While property damage and business interruption are common lines, captives are also underwriting cyber risks, funding wellbeing initiatives, and covering environmental liabilities and climate risks in the natural resources industry.

Traditional insurance costs have been driven upward in recent years due to challenging insurance market conditions and certain risks have become more expensive or difficult to insure. As a result, many organisations are turning to captive insurance solutions as an alternative risk financing option.

The overarching impetus driving increased use of captives has been the challenging primary insurance market. Over recent years insurers have been focused on ensuring their profitability and long-term viability and as a result, have become more selective on the types of risks they insure. This has prompted many companies to turn to captive solutions which provide innovation and flexibility to cover risks that are not readily insurable on the direct market. As buying conditions soften in segments or diverge in others, captives continue to be a valuable tool to navigate market cycles and control risk outcomes.

While existing captive owners continue to utilise their captives much more to attain the coverage they need within budget, many organisations are setting up new captives for low-frequency, high-severity risks or for the management of new or emerging risks where there are gaps in the insurance market.

Property damage and business interruption continue to be the most prevalent lines of business written by captives, but captives can be formed to cover almost any risk, for example:

A growing number of organisations are underwriting cyber in their captives.
As the cost of medical insurance continues to soar, organisations are considering captives as a funding source for wellbeing initiatives.
The natural resources industry has seen growth in captives writing risks the market regard as challenged – environmental liability, climate risk (flood/dewatering) and thermal coal.

For organisations seeking more control over their risk financing program, captives are an attractive option. As more companies become comfortable using captives and understanding the value they add, captives are likely to become further embedded into corporate risk strategies, regardless of market conditions.

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At the recent Aon Insights Series Pacific 2024, our masterclass Optimising Risk Management with Captive Insurance Innovation examined the current trends and future outlook of the evolving captive market and the advantages and disadvantages of captive arrangements. The session also examined how digital innovation and advancements in data analytics are enabling captives to address more complex challenges. Click here to view the presentation slides or watch the session recording below.