Growing uncertainties in the global economy and frequent rises in premiums in the commercial insurance industry have encouraged companies from diverse industries to set up their own captive insurance businesses. Over nine-tenths of Fortune 500 companies are estimated to employ captive insurers, usually in locations which offer benefits such as low taxes, territorial proximity and competent human resources.
Companies across a diverse range of industries are increasingly employing captive insurance as part of their risk management strategies. These companies are exposed to various risks and unforeseen circumstances, and it is often not feasible for them to obtain insurance cover for these risks due to high premiums in the commercial market and the non-availability cover for some industry-specific risks.
The four leading industries in the world, in terms of the number of captives established, are financial institutions, healthcare service providers, retail and consumer products companies and infrastructure companies. Financial institutions continue to maintain their lead in setting up captives; for these institutions, captives are part of an overall risk management strategy, easing regulatory burdens and reducing costs.
In terms of the number of captives domiciled on a global scale, the leading destinations include Bermuda, the Cayman Islands, Guernsey, Luxembourg and the US state of Vermont. The key reasons for the popularity of these locations are the relatively low taxes that they levy on captives, favorable foreign direct investment (FDI) regulations, the availability of competent professional manpower and geographical advantages such as proximity to the main regions of operations of the parent companies.
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