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By Max Dorfman, Research Author, Triple-I
Today’s inflationary conditions could increase interest for group captives – insurance companies owned by the organizations that insure them, according to a new executive brief from Triple-I.
Group captives recruit security-conscious companies with above-average loss experience, with each member’s premium based on their own recent five-year loss history. Additionally, the increased focus on pre- and post-damage risk management can drive down members’ premiums even further through their second and third years of membership.
“Each owner makes a modest initial capital contribution,” the paper reads. Group Captives: An Opportunity to Lower the Cost of Risk. “Usually these are lines of cover with more predictable losses, such as B. worker’s injury insurance, general liability, motor vehicle liability and property damage.”
With these benefits, the group captive model can help control rising litigation costs. This is particularly important as the involvement of attorneys in commercial auto claims – particularly in the trucking industry – leads to costly litigation and delays in settlements that drive up corporate spending.
In fact, a 2020 report by the American Transportation Research Institute found that between 2010 and 2018, average judgments in the US truck industry increased from about $2.3 million to nearly $22.3 million – an increase of 967 percent, with the potential for even higher judgments looming.
Group captives can improve control over these costs through diligent claims monitoring and review, often by providing additional layers of support that improve claims effectiveness and efficiency.
“Given that members’ premiums are derived from their own loss history, this is another way they can lower their premiums and proactively manage and control the losses that occur,” the Triple I report states. “Group captives can provide a viable way to protect businesses across multiple lines of casualty insurance. Their notoriety is likely to increase as economic and legal trends continue to raise costs.”
Most companies that join group companies are security conscious, although they often take entrepreneurial risks. “While they accept the risk/reward tradeoff, they are not gamblers,” said Sandra Springer, SVP of marketing at Captive Resources (CRI), a senior advisor to member-owned captive insurance companies.
“They are successful, financially stable, well-run companies that have confidence in their own abilities and commitment to controlling and managing risk,” Springer added. “They believe they will beat actuarial projections, and a large percentage of them do.”
Learn more:
Background: Captives and other venture financing options
Solid foundation: Prisoners by State
White paper: A comprehensive assessment of the captive option owned by members
From the Triple I blog:
Recent research into social inflation in commercial motor insurance shows a $30 billion increase in claims
How inflation affects P&C rates and how it doesn’t
Inflation trends shed some light for P&C, but underwriting gains still elude most lines of business
Monetary Policy Drives Economic Outlook; Geopolitics limits inflation improvement