Captive Insurance Survey Shows More Fronting Companies Being Utilized

Captive Insurance Survey Shows More Fronting Companies Being Utilized

Captive Insurance Survey Shows More Fronting Companies Being Utilized, Other Key Findings

The 13th Annual Captive Insurance Marketing Study by the Captive Insurance Companies Association (CICA) released in March indicates some key findings, including the fact that among the survey’s participants (134), 50% reported using a fronting company as part of their captive insurance programs. This can be attributed to an increase in participants whose captives are new (those in existence less than one year) as well as the increase in participants who utilize fronting selectively. According to the study, nearly two-thirds of this year’s participants reported using fronting only for covers where the benefit of rated, admitted paper, or another compelling reason, outweighed the cost.

In most fronting situations, a commercial insurance company (the fronting company) licensed in the state where a risk is located, issues a policy to the insured. Using reinsurance, that risk is then transferred from the fronting company to the captive insurer. The result is that the insured obtains a policy issued on the paper of the commercial insurance company (which charges a fee) but the captive insurance company in effect assumes the financial risk.

The survey found captives are satisfied with their fronting relationships. Ninety-seven percent perceive the value of their fronting relationship as excellent or moderate and 87.9 percent perceive the price as reasonable or inexpensive.

In addition, the CICA survey found that captives continue to explore placing employee benefits coverage in their captives and that cyber liability is one of the new coverages that captives are adding. The interest in placing employee benefits in their captives is not surprising considering the continued uncertainty surrounding the implementation of the Patient Protection and Affordable Care Act, and the fact that stop loss cover was high on the list of possible covers among the participants, with 9.6% of them reporting it is likely and 15.4% reporting it is possibly going to be written by their captives in the next three years.

Among the biggest challenges in owning a captive, participants in the survey named the following:

  • Retention/growth/expanded utilization
  • Regulatory issues, including Dodd Frank/NRRA and Solvency II
  • Collateral

These challenges the CICA concludes make perfect sense “given the continued lackluster economy, the current myriad of international, federal and state regulatory issues, and the ongoing tight lending environment due to current monetary policy.”

Caitlin-Morgan specializes in setting up captives. Our expert consultants will assess your clients’ needs and customize a captive solution that is perfect for them. Give us a call at 877.226.1027.

Sources: CICA, Carrier Management