There has been an increase in interest around those exploring the use of captives and alternative risk solutions, according to an Airmic survey conducted between 7 to 20 August.
The survey, which canvassed some 60 respondents from among Airmic’s membership community of UK risk managers and insurance buyers, found that in response to the 2020 harsh market conditions, 66.7 percent said they would explore the use of alternative risk transfer as opposed to traditional insurance.
Half of those who responded said their organisation already operates one or more captives, while 20.3 percent said they would consider forming a captive.
The report outlined how the hard market is changing the way organisations utilise their captives.
Of those surveyed, 31 percent said they were writing new lines of business; 37.9 percent were using captives for increased retentions; 27.6 percent were exploring alternative (re)insurance markets, such as insurance-linked securities; 13.8 percent had expanded their use of quota shares or co-insurance structures; and 20.7 percent had undertaken a complete overhaul or review of their risk financing and captive strategy.
For coverage to protect individual directors where a company cannot or has refused to indemnify them, 10.3 percent of respondents said they are considering using a cell captive solution and the same proportion are mulling over self-funding mechanisms.
Meanwhile, for coverage to reimburse an organisation after having defended or indemnified a director, typically reserved for publicly listed companies, and to protect the corporate entity from its own liability exposures, 42.9 percent were considering placing such protections within their captive and 3.6 percent said they would consider other options for funding mechanisms.
Elsewhere the survey showed an increase in figures around poor and late communication from insurance partners. Some 66.7 percent made this complaint in the most recent survey, a rise from 42.6 percent last year.
It also noted that fifth of respondents had experienced a rate increase of more than 400 percent. A majority saw rates rise for directors and officers (D&O) of at least 50 percent, and almost 30 percent said prices had doubled.
According to Airmic, the situation follows similar but less pronounced price rises observed in 2019’s study, highlighting the scale of the rate hikes.
John Ludlow, CEO of Airmic said: “Hard-won trusted relationships are clearly under strain. We must work better together to share relevant data with insurers to gain recognition for good risk management. Exposures and vulnerabilities poorly managed will be priced harshly but brokers and insurers should seek out well-managed risks and price them beneficially to be respected as balanced and fair.”
