State of the Insurance Market:
2025 Outlook

Captives

The captive insurance market continues to thrive entering 2025, driven by ongoing economic pressures and flexible risk management solutions.

Despite some easing in commercial insurance premiums, businesses face persistent challenges from healthcare costs, legal verdicts, cyber threats, and climate-related risks. Captives are increasingly seen as a versatile tool for risk retention and transfer, with applications expanding beyond traditional areas into property coverage, excess liability, and innovative revenue-generating programs. This trend reflects a growing recognition of captives as a strategic asset for businesses seeking to optimize their risk financing and maintain control in an uncertain market environment.

Market Conditions

 

Although there is an expectation for modest market relief in 2025, many opt to retain more risk in a captive insurance company. This allows them to choose the optimum point to transfer risk to third parties.

Workers’ compensation (WC) and general liability (GL) risks continue to be foundational pieces for many captives. The commercial property insurance market is expected to show increased responsiveness to innovative risk management strategies this year. Following a challenging period marked by limited flexibility in pricing adjustments, the market appears to be shifting toward a more dynamic approach that rewards businesses willing to explore tailored risk solutions. If that materializes, captives will play a key role in the evolution, helping companies retain sizeable, yet manageable risks with carrier partners offering broader protection. This shift enhances cost efficiency and aligns with the growing demand for customized, client-focused solutions. A willingness to deploy meaningful capital to support this retention of risk is necessary.

Transportation auto liability rates continue to increase, specifically in excess markets, due to higher severity and frequency of nuclear verdicts. Companies continue to drive captive formations to better manage this risk as part of a comprehensive risk management program that includes employee training and technology. Greater control over their claims is critical to the success of a captive program.

As more businesses explore the benefits of captives as an alternative risk financing solution, there’s been an uptick in the use of a captive to provide insurance backing to warranty programs, tenant damage, security deposit waivers, self-storage contents protection, and the like. When well run, these captives can potentially offer a revenue stream complementary to the core business. The medical stop-loss captive market is approaching maturity, bringing broader acceptance and understanding that can fuel growth. So long as there is continued focus on mitigating high-cost claims, we expect medical stop-loss captives to become mainstream with far wider adoption.

Parties that control large blocks of insurance business, such as managing general agents (MGAs), are utilizing captives to retain risks from their profitable books of business. As private equity continues its investment in this niche, we expect meaningful growth in this sector.

Captives remain a strong alternative to traditional insurance. We expect no material changes in the market.

Recommendations

 

Interested clients should become more knowledgeable about how captives are structured and how they can help manage risk, no matter the size of their business. From there, insureds are recommended to:

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Develop a list of major causes of loss that can adversely impact revenue.

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Identify insurance programs which are commercially available and those which are not.

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Retain a risk management consultant for guidance on possible ways to address these risks.

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Conduct a feasibility study to determine the expected return on investment of a captives program.

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Consider retention of risk and other techniques to develop the most cost-effective program.

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View the captive program through a long-term lens. Getting started early allows the accumulation of capital and surplus, allowing far more optionality in the future.

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The contents of this report are for general informational purposes only and Risk Strategies Company makes no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information contained herein. Any recommendations contained herein are intended to provide insight based on currently available information for consideration and should be vetted against applicable legal and business needs before application to a specific client.