Captive insurance companies are most commonly used to insure traditional exposures and insurance risks. More importantly, they can also be used to insure just about any risk to which a parent company is exposed. As an example, new and emerging risks such as cyber, technology and business interruptions through communicable diseases are becoming more prevalent. Risks that are unique to a specific company or industry as well as low-frequency risks and high-severity risks can also be covered by a captive.

We see two key issues that a company needs to be mindful of when considering insuring unique risks through its captive.

The first is the form and definition of the policy and the second is how to calculate the adequate premium for this unique risk against traditional types of insurance. Whilst there are undoubtedly challenges involved with placing unique or hard-to-place risks in a captive, depending on the situation, a captive remains a very good option and one that could ultimately reduce premium cost.