MIAMI – The hard commercial insurance market has led to a significant expansion of captive use over the past several years with owners increasingly using the vehicles to cover risks that were previously excluded, captive experts say.

Potentially catastrophic exposures are increasingly being covered through captives, and owners with favorable loss experiences are diverting more liability premiums into captives, they say.

As the market hardens in areas such as cyber and property catastrophe risks, captive owners are considering risks that previously they would not have covered in a captive, said Steve Gibson, president of Dealer Management Group, an Indialantic, Florida-based group captive for the automotive sector.

He was speaking during a session at Business Insurance’s World Captive Forum, which was held in Miami last week.

“Traditionally we always thought that cat is verboten inside a captive, you should never put cat in a captive, and yet it’s becoming that we have to move in that direction because the market is in such disarray,” he said.

For example, car dealers in South Florida that have more than $100 million in inventory have few insurers willing to take on the risk, so they are increasingly looking at captives, Mr. Gibson said.

And the exposures that captives take on are increasing, said Carmel, Indiana-based Anne Marie Towle, global captive solutions leader at Hylant Group Inc.

“People would evaluate their captive from the perspective of ‘let’s just take the primary layer and finance it,’ but today that primary layer could be a very large number,” she said.

As a result, captive owners are structuring their captive coverage in other ways, such as providing a layer of excess coverage or using quota shares to take a percentage of a layer, Ms. Towle said.

“If you have skin in the game, that’s a good partnership,” she said.

Policyholders should also consider the efficiency of the pricing in the commercial market before forming a captive, said Dave Raymond, vice president-specialty group captives at Travelers Cos. Inc. in Hartford, Connecticut.

“If you can get umbrella coverage for $50,000 and it used to be $25,000, that doesn’t mean that you should go run and start a captive. It’s still a super-efficient premium buy,” he said.

When premiums are higher for certain lines of coverage a captive can make more sense, said Catherine Dorrien, a senior vice president at Marsh LLC’s captive management unit in Atlanta, during another session at the conference.

For example, a policyholder that used to be charged $500,000 but is now being charged $3 million for a $5 million limit on an excess buffer layer would be able to use the premium to fund coverage through a captive over the long term.

“With a captive I can fund that $3 million a year and then build up underwriting income and therefore surplus over time,” she said.

John Deere, the brand name for Deere & Co. in Moline, Illinois, has recently expanded the use of its captive, said Aileen Krehbiel, manager, captive insurance programs, at the machinery manufacturer.

The Vermont-domiciled captive, which previously largely covered extended warranty risks, started covering the company’s trade credit risks last year, she said.

The coverage protects John Deere from nonpayment by dealers.

“We looked at the premiums we were paying, the claims history that we had in this space, and it just didn’t make sense anymore to have those policies in the commercial market,” Ms. Krehbiel said.

In addition, one of the insurers it had previously used pulled out of the market two days before the renewal date, she said.

General Motors Co. has taken on numerous additional risks in its captive since it was established in Bermuda in 1981, said Alan G. Gier, global director, corporate risk management and insurance, for the Detroit-based auto manufacturer.

As natural catastrophe losses have accelerated, it has taken on climate-related risks in the captive, such as coverage for dealer inventory, he said.

“We were able to be very selective in the dealers we took on so if we took two in Texas, we wanted four in Nebraska or somewhere that didn’t have as much exposure,” he said.