The Rise of Captive Insurance: Navigating Risks in a Post-Pandemic World

The Pandemic's Impact on Captive Insurance

The coronavirus pandemic has significantly accelerated the growth of captive insurance, a form of self-insurance where entities establish their own insurance companies to manage their risks. According to a survey by Marsh, captive formations nearly doubled in 2020, with gross written premiums growing from $54 billion in 2019 to nearly $61 billion in 2020. This surge can be attributed to the financial challenges posed by the pandemic, which have made traditional insurance coverage increasingly inadequate.

Captive Insurance in the Sports and Entertainment Industry

The sports and entertainment industry has been particularly hard hit by the pandemic, with estimated losses ranging from $6 billion to $10 billion. Premiums for event insurance have increased by 25 to 50 percent, making captive insurance an attractive alternative. The NCAA, for instance, established a $175 million captive fund for event cancellation after the 2020 basketball tournament was cancelled due to COVID-19, resulting in a $270 million payout.

Workers' Compensation and Captive Insurance

The pandemic has also influenced captive insurance in the workers' compensation sector. The 'Great Resignation' has led to a shortage of labor, making employees more valuable and prompting employers to be more willing to pay workers' compensation claims. Amy O'Brien of Gallagher Bassett Services Inc. reported that while 60 percent of COVID-19-related claims were closed without payment, the remaining 40 percent averaged $4,000 per case. This shift underscores the importance of having adequate tools to manage workers' compensation costs.

For organizations considering captive insurance, it is crucial to thoroughly assess their risk management needs and consult with experts to ensure they are making informed decisions. Captive insurance can offer greater control over risk management and potentially lower costs, but it requires careful planning and execution.