“More successful captives drive risk management results regardless of
insurance market conditions.”
Janet Grace, Connecticut Insurance Department
“In the same way they see how the insurance company that they
represent as an agent makes money.”
Another trend Barile is seeing in some of the more sophisticated
agents is their ability to retain talent within the agency and offering
them rewards through owning a stake in the agency captive.
“The owners of the agency captives are some of the biggest
producers of business for the agent. In addition to getting a salary
as a producer of an agency, the owner gets a salary that is equal to a
bonus which is a compensation of stock in an agency captive that’s
growing,” he says.
“Because he or she also owns the stock and its values, somebody
trying to poach him or her will have a degree of difficulty because
they’ll say they can’t leave because they have a lot of money tied up
in the agency captive that the agent owns.”
Hard and soft markets, and the future
The formation of an agency captive—just like any decision to start
a captive—requires a careful evaluation of the business, financial
factors and strategic fit that comes out of a full feasibility study.
Murray suggests that agency captives have probably slowed down
in the current soft market cycle, and he finds a lot of agencies are not
willing to expend the capital that is needed for the long term.
He believes the attractiveness of agency captives may change
depending on whether the market is hard or soft but says the time to
start preparing would be during a soft market, so that the agent can
be ready for any market changes.
“Even in a soft market there are niches that might not be as soft
or are very profitable business. It depends on the lines of business,
industries insureds, etc,” says Murray.
Crary also states that it would be potentially advantageous to
establish an agency captive programme in advance of a hard market
so that it is in place and ready to take advantage when commercial
prices begin to rise.
Grace suggests that market cycles aren’t what they once were—
and that perhaps they never were a good reason to form a captive.
“While hard markets where consumers experience large price
increases might increase interest in alternatives, more successful
captives drive risk management results regardless of insurance
market conditions,” she says.
“Agencies, as distributors, hold a unique market position and know
a great deal about their clients and the market. Throughout the
market, what economists refer to as ‘more perfect information’ is far
more readily available than it once was, and how agencies use their
position to develop a captive strategy will be key to success.
“With increasing use of artificial intelligence and big data one could
foresee big changes in the captive sector, including agency captives.”
Crary suspects the agency captive laws will undergo further
development as different programme ideas come to light.
“I expect further development in the area of agency-sponsored
captives as many agents will appreciate having the flexibility to legally
segregate different agency programmes without having to establish
separate captive facilities to do so,” he concludes.
www.captiveinternational.com US Captive 2018 31