Captive insurers are responding to COVID-19 property and business interruption claims and will likely play a greater role in writing pandemic risks as commercial insurance buyers grapple with tougher market conditions in the coming months, experts say.

While pandemic losses are excluded by some captives, others offer their owners broader coverage allowing them to recover some of the lost profits and extra expenses incurred amid business closures and government lockdowns, they say.

Several captives managed by Marsh LLC provide coverage for pandemics and for nondamage business interruption with triggers for pandemics, said Michael Serricchio, a managing director with Marsh Captive Solutions, a unit of Marsh LLC in Norwalk, Connecticut.

“We have nondamage pandemic policies and infectious disease policies. We have various property business interruption and contingent business interruption policies in captives that are triggered by different events, namely pandemics and outbreaks of infectious disease,” he said.

Real estate, hospitality and mining are some of the business sectors with captives managed by Marsh that have the coverage, but “it’s too soon to determine if they’ll be making claims,” Mr. Serricchio said.

“A lot of these coverages are direct between the captive and the parent, so it won’t show up for another quarter in terms of proceeds coming out of the captive,” he said.

Limits vary according to the risk appetite of parent companies and tend to be in the millions and tens of millions of dollars, rather than hundreds of millions, according to a recent Marsh webinar.

Group captive policies usually are issued on standard forms so any exclusions that exist in commercial property policies would still apply, but many single parent captives issue policies with “much broader coverage,” said Martin Eveleigh, chairman, Atlas Insurance Management, based in Charlotte, North Carolina.

These include policies issued by smaller captives, including some that elect to be taxed under Section 831(b) of the Internal Revenue Code, he said.

“Many of those captives will be issuing business interruption policies, supply chain interruption policies, some work stoppage, inability to access premises, that kind of coverage, so they will certainly be responding in terms of paying the claims,” Mr. Eveleigh said.

“We have a number of captives under management where the captive owner, the insured’s interpretation of the policy language is that there is some coverage afforded to them for COVID-19 losses,” said Jason Palmer, director at Willis Towers Watson Management (Vermont) Ltd.

“We’re talking with claims professionals and others trying to document and quantify what that claim will ultimately be and submit it to the captive,” Mr. Palmer said.

Business interruption where a government intervention forces a business to send workers home and it is unable to operate effectively remotely, and property coverage “to the extent where the insured had a reported case in their office space and needed to come through and clean and take other measures so the space could be occupied again,” are among the affected coverages, he said.

Programs that provide coverage related to bad debt exposures from vendors, tenants or property owners may also be affected, Mr. Palmer said.

However, property coverage is not typically written as extensively as liability coverages by U.S. captives, which will limit the captive sector’s overall exposure to COVID-19 losses, he said.

Meanwhile, amid the economic downturn companies may be leveraging the additional capital in their captives for other needs, experts say.

“Those businesses who are experiencing obvious financial distress may find that if they’ve had a captive that’s been running successfully for a number of years, they may be seeing claims paid but they may also find they have a source of funding,” Mr. Eveleigh said.

A lot of companies that don’t have pandemic coverage are looking to their captive for liquidity, Mr. Serricchio said.

“That comes in the form of large intercompany investments like loans and receivables, investments and subsidiaries or projects,” he said.

Going forward, captives are likely to be used more broadly to cover pandemic-related risks, especially given toughening conditions in the commercial marketplace. Trade credit, supply chain and medical stop loss risks are potential areas for future growth, they said.

“Longer term we’ve already started discussions with captive owners about issuing some pandemic coverage or wrap-around to commercial coverage to cover the next COVID-19,” Mr. Palmer said.

However, challenges exist around pricing and trying to get comfortable with the risk, he said.

Premiums will increase for coming renewals, Mr. Eveleigh said. “They were already going up before this happened and this is only going to exacerbate things.”

It’s also “highly likely” insurers will impose higher deductibles and there will be tougher language in policies and exclusions for communicable disease, he said.

“Those three things will drive a lot of people to think carefully about how they manage and finance risk in the future,” Mr. Eveleigh said.

“Going forward I can see companies that don’t have captives thinking about them for pandemic risks,” for example in hospitality and food beverage industries, Mr. Serricchio said. “But I believe they will also look at other lines of coverage that need to be looked at.”

More insurance and risk management news on the coronavirus crisis here.