Dupage Policy Journal

Captive health insurance remains stable in a hard insurance market as general captive insurance has proven resilient despite changes in the market, new risk items and an uncertain future, according to Captive Insurance’s white paper, The State of the Market.

In an Everlong Captive Health Insurance article, the recent trend in businesses moving to self-funded insurance plans is discussed and how captive health insurance is being turned to more by businesses looking for stability and a better way to purchase group health insurance.

According to the Employee Benefit Research Institute as cited by the Everlong Captive article, self-insurance did experience a decline between 2013, 2017 and 2020 (due to the pandemic) with a short rebound in 2018. 

"In 2021, the annual cost of employer-sponsored health insurance for family premiums increased by 4% and according to SHRM, employers can expect an increase of up to 5.2% in 2022," the Everlong article said.

The Everlong  article notes that newer market reports show that captive insurance overall, including captive health insurance, is on the rise. An increase in rates following the pandemic due to "employers’ limited resources and decreased demand for products and services due to mandatory lockdowns and other pandemic-related issues" has caused a shift for employers to seek a better way to purchase group health insurance that offers more stability like that of captive health insurance.

Health insurance captives allow employees to take advantage of tax write-offs, choose vendors that offer affordable drug costs, pay lower premiums and provide better wellness programs to employees such as mental and telehealth services, the Everlong article stated.

A January 2022 March report said that captive insurance has seen historic growth in 2021. An article by Marsh about the report said that this is the first time in nearly two decades that the U.S. has been experiencing the most significant increase in captive growth. The report predicts that growth could continue as it is predicted that more companies will choose turning to captive insurance as an alternative risk management solution. 

“And it’s not only new formations that are experiencing growth; there has also been a significant increase in premiums written by the over 1,500 existing captives we manage globally. In particular, we have seen tremendous growth in property, directors and officers (D&O), excess liability and cyber lines of insurance,” according to Marsh.

According to Global Risk Manager, Clarissa Franks, UK placement leader at Marsh, said during Global Risk Manager’s annual global program conference that while the average rate increases are currently seeing a slow down in the increase of rate for most lines, companies could yet turn to captives.

“Once the client sets up a captive, it is very unusual for all lines to move out of the captive and back into the market,” Franks said.

While captive insurance is becoming more popular, traditional insurance market continues to face uncertainty due to a variety of challenges including COVID-19, inflation, market trends and outdated business models which in turn has caused captive insurance models to be more attractive, a Yahoo article reported.

One of those factors contributing to captive growth seems to be the growth of the cyber market which increased 75% in 2021. An AM Best report, U.S. Cyber: The Hardest of the Property/Casualty Markets, shows that cyber insurance pricing increased 110% in the U.S. mostly due to the re-pricing and re-underwriting of cyber risks. This is helping drive the increase of captive insurances growth by making captive insurers an “attractive risk management option for corporations,” because of a lack of capacity, AM Best said in the report. Some of those captives were reported to have written policies with multi-million dollar limits and premiums, using third-party technology and forensic cyber consultants.