The long-term economic impact of the COVID-19 pandemic is likely to strengthen the case for captive insurance solutions for large corporations, according to Dominic Wheatley, CEO of Guernsey Finance.
Wheatley said the outturn of the pandemic crisis and lockdown was certain to have an impact on investment returns, squeezing capital, and placing increased focus on underwriting profitability.
He explained that these are “ideal circumstances” for corporations to look at alternative risk financing options such as captives.
However, Wheatley highlighted: “On the flip side, reduced economies will generate less demand for insurance in some classes, but my guess is that there will be real incentives for companies to develop stronger risk retention strategies based on traditional core captive benefits.”
He added: “As the market tightens, the ability to gain direct access to wholesale markets for capacity and control the design of your own coverage, will optimise the coverage and financing of risk across the range of assets, operations, and associated liabilities faced.”
“A captive not only provides the coordinating hub for this but also is a focal point for internal expertise and external advisers within a purpose-built governance structure to oversee your group risk financing.”
Wheatley noted that businesses adopting a captive solution would benefit from additional cash flow, building up better data for external options, and provide alternatives to conventional insurance for emerging risks with restricted market capacity or none at all.
