Marsh attributed the slightly lower price increases to improved rating stability in property insurance as well as in the financial and professional lines. Property insurance prices rose an average of 15% globally, compared to 20% in the fourth quarter of 2020. Liability insurance prices rose an average of 6%, up from 7% in the fourth quarter, and prices in the finance and professional sectors were the highest Rate of increase among major insurance product categories at 40% compared to 45% in the fourth quarter.
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Even if the average price increases may have subsided, the increases themselves are still significant – especially after 14 consecutive quarters of upward movement. This challenging insurance market has led many companies to consider alternative risk transfer solutions in order to reduce costs. Captives in particular have proven to be popular in recent years. These programs enable companies to control their costs and improve their margins by increasing their risk retention and better control of their insurance programs.
“It’s not difficult to see the connection between a difficult insurance market and increased premiums for captives. Put simply, it’s all boats, ”said Lorraine Stack, international sales and advisory director at Marsh Captive Solutions. “What is happening is fascinating because it really shows that captives and commercial insurers are all part of the same ecosystem and how interactive and interconnected the two parts of the ecosystem are.
“We see companies that started captives are still buying insurance. You’re still in the insurance market, just more strategic and cost effective. It is not that there is an escape of premiums from the commercial insurance market to captives. In fact, companies are actually looking for that value and the turning points [to determine] the right balance between risk retention and risk transfer – and most of them use analytics to back up those decisions. “
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In particular, companies around the world are reviewing their real estate programs, their surplus liability programs, and their Directors & Officers (D&O) liability programs to see if they can transfer some of that risk through a captive to free up capacity elsewhere. In D&O insurance in particular, companies are increasingly using so-called rent-a-cell captives (also known as protected cell captives), in which they take advantage of the traditional single parent or 100 percent insurance company. without the up-front costs, capital investments, or significant maintenance costs associated with starting and managing a wholly owned captive.
“With D&O it is [average] The 50% premium increase this year is on top of the 25% premium increase we saw last year – and it just keeps going. What is really happening at D&O is that there are companies that are putting a higher deductible on their side B and side C coverage in a captive, which enables them to acquire more side A coverage in the commercial insurance market ” explained Stack.
“We’ve also seen companies that can’t get Side A D&O coverage in the commercial insurance market (and there are some who do) start looking for cellular companies [to transfer that risk]which may give them side B and side C coverage in the market. We have a number that we are forming in Bermuda, we are actively forming a Side A D&O cell in Guernsey and we are also about to start one in Malta. Of course, the schedule is crucial with all of this. A cell can be formed very quickly in the United States – in up to four weeks – and possibly even faster in Guernsey or Bermuda. It takes a little longer in Malta because we still have a Solvency Two regime there, so it can take two or three months, but it’s still a lot quicker than starting a single parent company. ”