“The captive-first approach is a real thing. It’s a shift from having a niche vehicle one might use opportunistically to having one’s own insurance vehicle as a group being the centre of its risk management and insurance buying strategy.”
Richard Paris-Smith
Captives are becoming a more mainstream part of global risk management, a development welcomed by Guernsey practitioners. In our latest podcast, Richard Paris-Smith, Christina Bell and Ben Davies of the Guernsey International Insurance Association (GIIA) discuss why the spotlight is on captives, the solutions they offer and why Guernsey’s experience remains a selling point to clients around the world.
While Guernsey has more than a century of experience in the captive insurance sector, other jurisdictions have been introducing regulatory frameworks for them in recent years. Italy, France, the UK and individual states in the US are enabling the formation of captives and cells, reinforcing that captives are established risk-management tools with substantive commercial purposes.
Far from being a threat to Guernsey, this is a welcome development. “The UK and other jurisdictions are validating what Guernsey’s insurance community has been saying for years,” said Ben. “We are supportive of mainland jurisdictions forming captive frameworks. We know the strengths we have here in Guernsey and would welcome any business or company around the world that wants further information to approach us.”
Guernsey’s specialism
Having dealt with captives for more than a century, the island has “been at the forefront of their development and solutions for a very long time”, Richard confirmed.
The island offers a flexible and pragmatic regime that is focused on captives, giving managers the reassurance that they’ll be dealing with an experienced operator in a specialist ecosystem.
Christina outlined the process for setting up in Guernsey, noting that if a prospective client is ready it “can happen pretty quickly”. She said a full feasibility study would typically take “four to six weeks”, and that once there is a decision to move ahead the GFSC would usually need “four to six weeks” from receiving the full application. “So I think you would be talking three months from initial captive concept to be up and running,”
This represents a reasonable timescale and as Richard pointed out, “by the time we submit an application to the GFSC, we’re very confident that it’ll get through because we’ve asked the questions and pre-empted the hiccups that might arise.”
There is also a fast-track process, “which can be done virtually overnight”, Christina added. This sets up a cell under a PCC, rather than establishing a fully-fledged captive.
The future of captives
The growing number of jurisdictions introducing captive regimes is not the only factor driving their wider use. Captives are also being deployed in increasingly innovative ways.
Captives can insure risks that may be “deemed uninsurable in the commercial market” and have historically been used to “incubate risk” before sharing it with the commercial market once a good loss experience has been demonstrated, Christina explained.
Now though, captives have greater breadth and usage than ever before. Cyber insurance provides a clear example of how captives can help organisations manage emerging risks before the commercial market has fully developed its response. Employee benefits are another area where larger corporates have used captives to manage complex programmes in a more deliberate and coordinated way.
The same logic now applies to newer risks, with AI, supply chain disruption, data and other emerging exposures creating areas where commercial insurance may be unavailable, limited or uneconomic.
As Christina summarised, “Captives were once used to plug holes, particularly in a hard market. Those days are gone. They now play a much greater role.”
Listen to the full podcast to hear more from Ben, Christina and Richard about Guernsey’s experience, expertise and position as Europe’s leading captive domicile.
As well as being representatives of GIIA, Richard Paris-Smith is Client Services Leader at Strategic Risk Solutions, Christina Bell is Executive Vice President at Davies, and Ben Davies is Senior Underwriter and Client Manager at Willis Towers Watson.
