Captive Insurers Grow Their Third-Party Business with Help from Digital Tools: Marsh

May 30, 2019

The number of captive insurance companies writing third-party business is growing at double-digit pace as the digital era expands the ways that organizations can provide and service insurance, according to global insurance broker Marsh.

Technology advances, including mobile applications and blockchain, are making it easier for organizations to offer insurance to third parties including customers and suppliers, Marsh notes in its 2019 Captive Landscape Report, which examines trends among 1,100 captives managed by Marsh Captive Solutions globally.

New technologies can help captives not only insure new risks but also reduce expenses by streamlining the handling of policy information, proof of insurance, and claims payments, the report notes.

Common third party coverages include extended warranties, auto liability, theft, travel accident and independent contractor/customer risk vendor policies.

According to the report, 22% of Marsh-managed captives wrote some form of third-party business in 2018, representing a year-over-year increase of 12% and a 62% increase over the last five years. In particular, coverage for contractor, vendor, and customer risk continued its steep growth trajectory, increasing 138% among Marsh managed captives in the past five years. In 2018, Marsh captives writing such third-party risk generated a total of US$162 million in net premiums.

Marsh-managed captives wrote more than US$3 billion of net premiums for extended warranty coverage in 2018. The number of Marsh captives writing such coverage, which protects a variety of assets from computers to automobiles, increased 22% over the last five years.

By underwriting third-party risks in a captive, parent companies can bring in additional premium and generate profits should the captive perform well, according to Marsh.

“More risk professionals today are embracing captives as a tool to secure their organization’s futures, whether it’s generating profits by underwriting third-party risks, accessing reinsurance, or providing cost efficiencies,” said Ellen Charnley, president of Marsh Captive Solutions.

Financial institutions remain the largest user of captives, representing nearly 23% of Marsh- managed captives. Health care and manufacturing rank second and third in use of captives.

Among regions where captive parents are based, growth over the past five years has been robust: Asia-Pacific, up 24%; Middle East, up 33%; Caribbean, up 18%; and Latin America, up 17%.

Over the past five years, the number of Marsh-managed captives writing multinational employee benefits increased 243% and those writing cyber liability coverage increased 95%.

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