Captive owners expand risk management strategies beyond traditional insurance
Owners of captive insurance companies are increasingly leveraging them beyond traditional risk financing, aiming to enhance loss prevention, optimize capital management, and provide insurance solutions to business partners.
Diversifying Captive Functions
Certain firms utilize data from captive losses to inform decisions on property upkeep and security investments, while others craft investment approaches to address long-term liabilities or align risk strategies with their parent company’s objectives.
During the Vermont Captive Insurance Association’s Chicago Chapter Summit, speakers observed that established captive owners are reconfiguring their structures to manage risks associated with vendors, clients, and collaborative ventures.
Christine Brown, the deputy commissioner of captive insurance at Vermont’s Department of Financial Regulation, pointed out the transformation of single-parent captives into sponsored captives, enabling other entities to secure coverage through distinct cells.
These arrangements allow captive owners to provide risk management services to partners, generate fees, and maintain separation of risks, as explained by Brown.
“That’s been an interesting trend that we’ve seen over the last year or so,” Brown said.
Practical Implementations
Kite Realty Group utilizes incident data from its captive insurance program to guide spending on property maintenance and security, according to Theresa Severson, senior vice president of insurance and risk.
The real estate investment trust gathers incident details through its captive, even when no claims are filed, to identify trends and justify risk management investments like parking lot repairs, enhanced lighting, and security measures.
This approach ensures every dollar spent through the captive is tracked and accountable, shifting internal discussions about risk, Severson noted.
Every dollar that flows through the captive has visibility and accountability within the organisation, which changes the internal conversations that you have around risk, Severson said.
Additionally, the captive helps Kite handle a challenge common to REITs: while leases permit passing insurance costs to tenants, deductibles remain the landlord’s responsibility, even when insurers mandate higher retentions than lease terms allow.
By covering these retentions through its captive, Kite recoups costs via insurance premiums, Severson explained.
RSM US employs investment strategies to align its captive’s assets with potential professional liability claims that could take 20 years or longer to resolve, as stated by Gus Springmann, director of insurance and risk financing.
The accounting firm’s captive also offers medical stop-loss coverage, providing shorter-term risk exposure to balance its professional liability portfolio.
Investment gains and surplus accumulation have allowed RSM to explore additional coverages, such as cyber, management liability, and employment practices liability.
Strategic Alignment
United Airlines integrates its captive insurance approach with overall financial planning, as shared by Andrew Nottestad, managing director of risk management.
Reporting to a senior treasury executive, Nottestad participates in regular meetings with financial leaders, gaining insights into company-wide initiatives like fleet acquisitions and the airline’s loyalty program.
“That’s my chance to kind of articulate where there might be opportunities for us to think about financing risk differently,” he said.
These interactions ensure the captive’s investment and capital strategies are in sync with the parent company’s broader financial goals.
