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Interest in captives ‘sky high’: Gallagher


Captive insurers are increasingly providing relief especially for short-tail lines, as commercial insurance rates increase across the board, according to the top executive at Arthur J. Gallagher & Co.

J. Patrick Gallagher, chairman, president and CEO, said captive interest is “sky high” and that the brokerage is seeing more businesses filling out property towers while utilizing their captive.

“You never saw short-tail risk going into captives. We’re seeing a lot more demand for captives on medical stop loss and health insurance,” Mr. Gallagher said at Business Insurance’s virtual World Captive Forum on Thursday.

Cell use of captives and group captives has also increased, a trend that stayed strong even during the softer market, he said.

“You’re seeing those go down to accounts (in the) million dollars in premium all the way up to the big single-parent captive that can take very specific difficult-to-place lines and help be a mitigating effect on this market,” Mr. Gallagher said. 

Mr. Gallagher made the comments in an interview with Business Insurance editor Gavin Souter.

In the current hard market, companies are finding it difficult to get the capacity they want, and rates are increasing across the board, he said.

While customers are not happy about it and view the increases in some instances as “pretty violent,” insurers are responding “not inappropriately,” he said.

“You could argue whether 10-15 years of a softening flattish market needs to be fixed over a two-year period but, nonetheless, I think there’s some reason behind it,” Mr. Gallagher said.

Insurers are making greater use of data and analytics to inform their underwriting, he said.

“There is capacity in certain lines, but I think probably appropriately so, underwriters are getting the premium that they need for that capacity. They don’t have the luxury of great interest rates any longer, so they have to make money on the underwriting and the data is there to help them do that,” Mr. Gallagher said.

Looking ahead, Mr. Gallagher predicted further rate increases and discussion around cyber risks.

“We analyzed our book a number of years ago and found out less than 15% of our clients were buying cyber… Most of them didn’t buy it. I think that is going to change,” he said.

The SolarWinds attack and rising ransomware events highlight the growing severity of these types of attacks and the need for coverage. “Demand on that side is going to go up substantially,” he said.

In addition to releasing pressure in the market, captives are alternative vehicles that turn into long-term commitments, Mr. Gallagher said.

“People don’t jump in and out of captives and they don’t trade them out like they might trade out even their trading relationship with individual primary carriers,” he said.

Captives can also provide funding when no coverage is available, like in a pandemic, he said.

“It does take the bumps out of the market,” Mr. Gallagher said.

This is a time when brokers earn their keep helping clients with program design, and by providing analytics around what is happening in the market, he said.

For more information on the World Captive Forum, click here.






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