Throughout the last eighteen months, premiums within the commercial auto space have risen steadily and sometimes dramatically. Underwriters are struggling to turn a profit, and insureds continue to look for alternative program structures to help stabilize premiums and avoid market fluctuations and insurer exits. Although by no means a new concept, captives and risk retention groups continue to grow as an alternative to traditional insurance programs.
The decision to explore captive structures depends on a multitude of factors, including but not limited to fleet size, corporate ownership and structure, tax considerations, estate planning, and available third-party exposures. Owned, single parent captives allow insureds to insure risks within their own captive, including difficult to place coverage and deductible exposures. Group captives, where insureds join a captive with other insured members, allow for the pooling of certain risks and purchase reinsurance as a group, which can create efficiencies and potentially pay dividends if the loss experience is favorable. Risk retention groups, known as RRGS, can only write auto liability coverages, but can alleviate the substantial collateral requirements of traditional high-deductible insurance programs.
All three of these types of structures allow insureds to take more control over their risk management programs, and many transportation companies are utilizing safety technology to mitigate loss activity and make their driving jobs more attractive. Electronic logging devices, In-cab cameras, collision mitigation systems, lane departure warnings, and active cruise control devices are becoming more and more prevalent among motor carriers, and their impact is evident in the loss data. Underwriters pay close attention to the implementation of these technologies, and their effect on a potential catastrophic claim can be a game changer.
As the auto liability market continues to deteriorate, clients should look to their insurance and financial advisors to determine whether these alternative structures might be worth exploring.