Spotlight on Captives 2025 - Embracing Opportunity, Taking Control

It notes that extreme weather events, armed conflicts, misinformation and supply chain disruptions are converging to create an environment of uncertainty – one in which resilience is not optional but essential.

Given this context, captives have never been more vital, according to Adriana Scherzinger, group head of captives, Zurich Insurance Company. “They provide organisations with the ability to take control, stabilise volatility, and respond with agility to shocks that the traditional insurance market is struggling to absorb. Our Captive Spotlight Report explores how captives are being used to do exactly that: financing climate adaptation, incubating emerging risks, and aligning with ESG goals.”

The new report, Spotlight on Captives: Embracing Opportunity, Taking Control, from Commercial Risk and Zurich Insurance Company, highlights the increasingly important role played by captives in helping to control the volatility in the insurance markets and manage emerging and difficult risks.

Climate risk

It is clear that captives have a much broader role to play than simply retaining and financing risk. When it comes to climate risk, for example, captive can help to build resilience and adaptation by collecting data, providing encouragement and financial incentives for risk improvements, and funding prevention and adaptation measures.

There are various ways in which captives can take on climate exposures or play a part in their mitigation, including retentions and cost savings, tailored coverage, and the financing catastrophic risk, as well as providing access to reinsurers and to alternative risk transfer options such as parametric solutions or weather bonds.

And as captives participate in the increasing risks related to climate change, they can help invest significantly into risk mitigation and loss prevention measures, such as climate-resilient infrastructure.

Aiding the transition to net zero

Captives also have a key role to play in the transition to net zero, in terms of centralising the loss data and incubating the risk. The captive structure incentivises companies to think long term; so captives are an essential asset in accelerating progress towards a net zero future.

Captives can play a critical role in strategic planning through their long-term outlook and can support tailoring insurance coverage to address certain extreme weather exposures material to their specific business.

The report shows that there is a big role for captives in helping companies move towards net zero, supporting emerging green technologies by covering risks that the traditional market is not covering – like performance guarantees or new supply chain exposures.

Cell captive growth

The report looks at the rise of cell captives which have seen particular growth in the last few years, noting that cell captives are particularly attractive to companies seeking cost-efficient, flexible and segregated risk solutions but lacking the scale or appetite to establish a standalone captive.

Cell captives are also being used by large companies to write specific risks, split liability classes from property, or by multinationals for their subsidiaries. Cell captives can be attractive to firms entering new markets or launching innovative products where traditional insurance may be limited or unavailable, such as technology, life sciences and ESG-related covers.

Property Risk

Property insurance has always been a mainstay for the captive sector, and in the last few years the hard market has driven more business into the captive sector. Despite the now softening market, captives are continuing to buy down deductibles for their affiliates as part of risk retention strategies. With uncertainty over whether market conditions will continue, or whether a major nat cat event could once again turn the market, having a captive provides options and the ability to smooth the underwriting cycle.

Concerns persist in the property market due to the ongoing impact of catastrophes, particularly secondary perils and flooding, climate change, reinsurance costs, inaccurate risk valuations and sustained inflationary pressures. Given these conditions, there has been an increase in the number of captives stepping in to provide various forms of property cover.

Employee benefits

An important area for captives highlighted in the report is employee benefits, largely because of the flexibility they offer. The report shows how captives can act a centralised hub for employee benefits, pooling risks from multiple countries or subsidiaries.

It suggests cost containment is one of the biggest drivers of using a captive for a benefits programme, noting that a multinational company might have hundreds of different policies around the world, with dozens of different insurance companies and vendors, which can make it complicated to get any kind of understandable usable data centrally. A captive can be a catalyst for consolidating vendors, making it possible to get access to data sources and analytic solutions.

Group captives

The report also focuses on group captives, an important risk solution for companies in the US that have a strong focus on risk management and containing losses, but for whom the costs of establishing a single-parent captive may be too high. Group captives offer a unique way for businesses to manage risks collectively, by pooling resources and sharing risks.

It stresses that the group captive collaborative approach not only fosters a sense of collective responsibility towards risk prevention but also allows for more tailored coverage options that better meet the specific needs of the group.

The concept creates a strong focus on risk management because it will be reflected in reduced claims and losses, and a potential dividend in profit sharing, combined with investment income on premiums. Ultimately, members have better control over losses and better data, and therefore the ability to identify and manage claims.

Third party business

Finally, the report examines a growing trend among captives: writing third-party business. It notes growing interest in captives expanding into third-party business, with more established captives underwriting significant third-party business, reflecting both strategic ambition and a maturing view of the captive as more than just a risk-financing tool.

According to the report, captives are covering a whole range of risks, such as extended warranty or service contract programmes, affinity insurance programmes offered to customers (such as travel insurance, product protection, mobile & tablet insurance), P&C insurance programmes for franchisees, contractors or suppliers, and even employee benefit solutions for non-parent entities.

There are a number of compelling motivations for a captive to move into writing third-party business, from profit and tax advantages to risk diversification and customer experience. On the latter point, third party underwriting can be used to strengthen brand loyalty and create closer relationships with customers by offering insurance products that can reduce costs, support products and increase the parent group’s presence in the market.