Swiss Re’s latest report, Insuring ever-evolving commercial risks, charts the growth of self-insurance, in which a firm establishes a captive insurance company – an in-house insurance division used to cover a company’s assets and risks.
There are now 5,745 captive insurance companies worldwide, a figure that has grown every year over the past decade.
“Captive insurance companies have become a standard tool for large corporations to perform integrated risk management,” said the Swiss Re report.
“Through captives, multinational corporations can better bundle and diversify their risks, and can benefit from better loss prevention incentives and claims settlements. When compared with traditional insurance solutions, self-insurance can sometimes come at a lower cost, eliminating insurer overheads and broker commissions.”
The report suggested that self-insurance is particularly useful to cover risks which can prove difficult to arrange cover for, such as professional indemnity insurance, terrorism risk insurance and environmental impairment liability insurance.
The report did add the caveat that captives need to be capitalised and this tends to drive up management costs.