Captives with Steve Bauman of AXA XL

What are some current or emerging risks that lend themselves particularly well to captives?

The first emerging risk that comes to mind is cyber—it’s new, potentially volatile and costs could be uncertain but it could very well be suited for captive utilization if structured in a prudent manner understanding that captive utilization is a long-term venture.

What challenges do businesses face in forming captives successfully?

Companies looking to form a captive in this environment are in a real advantageous place right now, with more captive domiciles than ever to choose from, a large amount of captive consultants to choose from, and more variations than ever of types of captive vehicles to fit a broader range of business entities, i.e., single parent captive, group captive, cell captive, etc. Challenges could be making a corporate decision to put up extra capital, funding and formation fees to begin to review and establish a captive entity, understanding the captives are long-term ventures which will be more costly in the short term. Challenging could also be the need to focus on a smaller vision of risks to initiate a captive’s feasibility and set up, and not to try to boil an ocean with possibilities.

We have seen some reports of captives being used to combat the challenging commercial auto insurance market. What are your thoughts on this?

Captives are made for risk management challenges such as commercial auto, and with so many clients with more mature captives with proven track records and extra capital and surplus built up over the years, captives are ready for the challenge. But all new risk placements into a captive should be carefully reviewed with a proper structure and to be fully compliant with all regulatory concerns.

How can brokers pinpoint which clients could be well served through a captive approach and how should they engage clients on this issue?

Brokers should look for clients ready to have a long-term commitment to a risk management strategy that includes a captive assuming more risk, while at the same time ramping up loss control efforts, so to benefit from the expected results of retaining premium for less expected losses.