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Communication key in promoting value of captives: Panelists


BURLINGTON, Vt. – Risk managers and captive owners need to communicate the value of their captive insurance programs, especially in a hard market and difficult economy, experts say.

Risk managers should be prepared to defend the surplus a captive has built up in today’s economy when organizations may be looking to it as a means for cash flow, panelists said Tuesday during a session at the Vermont Captive Insurance Association’s 2023 annual conference.

The hard market is increasing rates for property and other lines of coverage, said Karin Landry, managing partner, Spring Consulting Group LLC in Boston.

“We’ve seen increases of 30% up to 300% for certain lines of coverage,” Ms. Landry said.

An uncertain economy has heightened management’s focus on various things, including captives, and proving the value of a captive is coming to the forefront, she said.

“CFOs are always looking for ways to save money. Whenever you have a new CFO, everyone’s always worried about what’s in that piggy bank,” Ms. Landry said.

Organizations have competing priorities in today’s economic environment, which may lead to questions about whether captives are really adding value, she said.

“In the long run captives have shown their value, but these are the kinds of questions that we see clients dealing with on a day-to-day basis,” she said.

In a hard market, captives can be used as “a problem-solving tool” to combat rate increases and capacity reductions in lines such as cyber and property, said Michael Lubben, Chicago-based vice president of risk management and benefits at Henry Crown and Co./CCI.

By increasing retentions and putting in place a deductible buy-back, organizations may be able to draw greater competition among commercial insurers for their insurance program, Mr. Lubben said.

“A captive is a risk mitigation tool that companies are going to use to be able to get coverages or compete against coverages that you’d see in the market,” said Allan Autry, tax partner, Johnson Lambert LLP, in Raleigh, North Carolina, who moderated the panel.

Risk managers are often dealing with executives that need to approve the formation of a captive, Mr. Lubben said.

“They don’t know anything about captives, so the first step is to just provide that education and talk them through to this thing actually does exist and does work,” he said.

Having great communication with various parties, including insurance brokers, actuaries, the captive board and internal senior management, is critical to achieving a clear understanding of the value a captive can provide to the organization, Mr. Lubben said.