How to Use Your Captive to Fund Risk Management Projects

Once established, a captive requires ongoing review and maintenance to ensure it is running efficiently and being used effectively to maximize the benefit to the parent organization. Experienced captive owners review opportunities to write additional lines of coverage, confirm whether the current domicile continues to be the best choice, uncover new tax considerations that may affect them, and determine optimal program structures.

Historically, clients have used their captives’ surplus to take on additional limits, writing new lines of business, or fund for loss control. However, as more captives write non-traditional risks, we’re seeing an increase in interest in using captive surplus to fund risk projects and analytics associated with these risks.   

For example, when considering whether to add the retained portion of a company’s cyber exposure into its captive, performing a cyber business interruption quantification (CBIQ) analysis can provide the additional insight into exposures that weren’t considered. The captive can fund such analyses through the surplus it has accumulated.

Risk Management Initiatives That Captives Can Fund

• Analytics: Risk finance optimization (RFO) projects can help to determine capital efficiency and optimal risk retention levels to help inform captive utilization.
• CBIQ: This valuable tool can help quantify exposures for clients self-insuring business interruption exposures for cyber (particularly for non-physical damage triggers).
• Claims Inventory Workout (CIW): Clients using their captive to fund their casualty loss picks can use a CIW to help accelerate the closure of legacy claims.
• Workforce Strategies: Incentivize business units to improve safety loss control improvements as well as pay for individual loss control projects such as ergonomics, fleet safety, property valuations, and tribometry (slip-and-fall prevention).

It is important to check with your local domicile to ensure this type of funding is allowed locally. Captive owners interested in pursuing risk management support projects should contact their Marsh Captive Solutions representative for further advice.