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Alternative risk transfer instruments – captives on the rise
In today's rapidly evolving business landscape, industrial companies face a multitude of challenges in managing and mitigating risks that can significantly impact their operations, profitability, and long-term sustainability.
The ability to identify, assess and proactively address these risks has never been more important. We see this not only in emerging risks such as Cyber and ESG, but also in the light of global events such as the COVID-19 pandemic and its aftermath, as well as the latest political developments in the Israel-Gaza and Ukraine-Russia conflicts. It is within this context that our comprehensive study on risk analysis in industrial companies and the potential for founding or operating captives emerges as a valuable resource for forward-thinking organizations.
“I believe that the trend for industrial companies like ours is to set up even more captives, to use existing captives in an even more exposed way, as well as to consider other ways of risk financing.”
The study at a glance
This study delves deep into the world of captive insurance market. By exploring the innovative strategies and alternative risk transfer mechanisms available, we provide a holistic view of how companies can safeguard their interests and gain a competitive edge in the face of an hardened insurance market. With a particular focus on captive insurance as a strategic risk management tool, we unravel the complex intricacies of its foundation and operation.
Our research methodology comprised a two-fold strategy that brought together the invaluable perspectives of industry experts and insiders. We conducted a quantitative Computer-Assisted Telephone Interview (CATI) survey, engaging with over 60 seasoned experts in the industry, representing a broad spectrum of companies from various industries.
Complementing this quantitative approach, we embarked on a series of in-depth interviews with the individuals at the forefront of captive insurance management in major German industrial companies. These interviews, along with insights from experts hailing from academia, the industrial insurance sector, reinsurance, and brokerage, offered us a qualitative perspective that delved into the practical challenges, opportunities, and complexities faced by those operating in the captive insurance realm.
“I believe that for some risks there is actually no possibility to hedge on the insurance market, for example business interruption due to the failure of supply chains. You can intervene with your own precautions, you can build up redundancies.”
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Modern risk transfer solutions: Focus on captives
Our research is not just an information source but also a practical guide for industrial firms looking to enhance their risk management practices and delve into the realm of captive insurance.
Top recommendations for action for founding a captive
- Know your own risk situation
- Awareness of the complexity of a captive
- Good communication is crucial
- Internal insurance know-how is necessary
- Clarify feasibility
- External Finance and Regulatory support
- Become part of the captive community
Know your own risk situation
Before embarking on a start-up, it is important for companies to know their risk situation - both for the past, present, and future. This results in the need for centralized risk management in the company. Ideally, data on claims and their development should be available within the company itself. Internal resources should be permanently available for this process. If necessary, it may be necessary to seek external support.
Outlook – Theses on the future of captives
In the beginning, it is worthwhile to exchange ideas with like-minded people, with companies that have just founded a captive or through captive networks such as the European Captive Forum. Afterwards, it makes sense to get external support in order to have a standardized procedure and to get an outside-in view.
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Modern risk transfer solutions: Focus on captives
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The methodology
The study is based on a two-stage survey design. Based on extensive desk research, a quantitative telephone-assisted online survey (CATI survey) was first conducted among 61 experts from the risk management of industrial companies. In terms of content, the focus of this industry survey was on the hedging of corporate risks both via the classic insurance market and by means of alternative hedging models. The survey was prepared, and the data collected in cooperation with Statista.
The quantitative survey was followed by eleven qualitative expert interviews with captive owners of large German industrial companies as well as experts from science, industrial insurance, reinsurance, and brokers. The interviews focused in particular on issues related to the establishment and operation of captives as well as the development of the captive market.
The Versicherungsforen Leipzig inspire and motivate the insurance industry to transform. Together we shape the future of the industry. We identify the topics that will move and change the industry. From this, we develop an understanding of the impact this will have on the various areas of the company. On this basis, we explain what options for action the industry has for the future. Together with the companies, we design customised and tailor-made solutions.
In addition to R&D projects such as studies, market analyses and strategy consulting, Versicherungsforen Leipzig is also known as a provider of exchange and training formats such as specialist conferences, trade fair congresses, user groups and seminars. Through our many years of activity, we have also built up a unique network that includes over 250 companies in the insurance industry and industry-related service providers.
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