Captive insurance is becoming more accessible, moving beyond just large corporations to include smaller businesses. This change is reshaping the role of insurance brokers, who are now expected to provide more than just policy placements. They are stepping into a more advisory role, helping clients understand the long-term benefits and strategies associated with captive insurance.
Currently, there are over 8,000 captive insurers around the world, generating $50 billion in premiums. As more mid-sized companies explore this option, brokers must enhance their guidance and support. Prabal Lakhanpal, a senior vice president at Spring Consulting Group, has observed this shift firsthand. He notes that the growing interest in captives among smaller clients is not due to a simpler model, but rather because both brokers and clients are becoming more knowledgeable.
In the past, the main focus for brokers was to place insurance coverage. Now, the emphasis is on strategic advice. Lakhanpal emphasizes that brokers need to help clients see captives as part of a long-term plan, rather than a quick fix. “Captives are not a silver bullet,” he explains. They require careful planning and understanding of risks, especially when starting with familiar areas like workers’ compensation or medical stop-loss.
The rise of Protective Cell Companies (PCCs) is a key factor in this evolution. PCCs allow smaller organizations to participate in captive insurance without needing extensive infrastructure. Lakhanpal points out that while PCCs offer efficiencies, brokers must ensure clients understand the complexities involved. He warns against overselling the simplicity of joining a PCC, as this can lead to misunderstandings about the regulatory and risk management aspects.
Lakhanpal expresses concern over the oversimplification of captive insurance in the market. He believes that many brokers present captives as an easy solution, which can mislead clients. “Captive insurance is just another way to fund risk,” he says. It doesn’t eliminate claims; it changes how they are managed. Clients must be aware that whether self-insured or using traditional insurance, they will still face claims.
The real advantage of captives lies in their ability to stabilize cost fluctuations. As more companies adopt this approach, the demand for in-depth advisory support will increase. Brokers who treat captives as simple products may find themselves outpaced by clients seeking comprehensive partnerships. “Captives are a tool, not a miracle,” Lakhanpal concludes. For brokers to remain relevant, they must recognize this and offer thoughtful guidance to their clients.