MIAMI – More policyholders are establishing protected cell confinements as insurance rates continue to rise, a panel of experts said.
Buyers are becoming more sophisticated and are more often seeking direct access to reinsurance markets via cell captives, they said during sessions Thursday at the World Captive Forum, sponsored by Business insurance.
The growth of captives is part of a broader fragmentation trend in the risk-taking sector of the insurance market, which has seen significant increases in the number of senior general agents, said Joe Marcantel, a Lafayette, Louisiana-based director of Talisman Casualty Insurance Co., a protected captive.
It also reflects the growth of new risks related to technology, he said. “You have to understand, analyze and figure out a way to transfer that risk,”; he said.
Huge increases in property insurance rates are also driving interest, Marcantel said.
“I wouldn’t be surprised to see 30 to 50 property tax-focused captives go up in the next calendar year,” he said.
In addition, insurance buyers are becoming more sophisticated and realize that their primary insurers are transferring much of their risk to reinsurers, so they are trying to achieve cost efficiencies by accessing the reinsurance market themselves through captive cells, Marcantel said.
Concerns expressed about using protected cells rather than single-parent inmates include mixing risks with other cell owners within a protected cell company, but the structures prevent that, said Jeff Simpson, a Wilmington, Delaware-based partner at the law firm Womble Bond Dickinson (US) LLP.
“The key feature of cells is the separation of assets and liabilities and what that means is that everything in your cell is protected from everything else that happens in the company,” he said.
Cells also offer a path into captives for owners who may not be comfortable forming new companies, Rich Serina, Melville, New York-based head of risk management and ERM at Canon USA Inc., said in another session at the conference. Canon formed a protected cell in 2018.
“We don’t have different actual companies within our organization, so if we had wanted to go ahead and form a single parent with its own board and all the things associated with that, I don’t know if it would have been as well received,” said he.
The protected cell also has lower costs than single-parent confinement, where most of the work is done by the existing risk management department, Serina said.