With the increase in premiums for all sectors globally in the insurance industry after the Covid-19 pandemic, many risk professionals have started considering the option of captive insurance companies.
A ‘captive’ is a licensed insurance company utilised to insure a wide range of risks depending on business needs. Many businesses begin with coverages such as the deductible or self-insured portions of general liability, auto, casualty, property and workers compensation losses, but often expand coverages to include unique risks such as management liability, environmental liability, terrorism, cyber, professional liability, and extended warranty claims. Risks can be first-party or third-party, and companies can be creative in utilising their captive programmes, according to a PwC report.
Top officials of Labuan International Business and Financial Centre (Labuan IBFC), Malaysia, a leading international business and financial centre in the Asia Pacific region, talked about the significance of captives during a seminar at the Nagaworld in Phnom Penh last week.
Looking at the prospects of attracting more Cambodian companies to Labuan, Datuk Iskandar Mohd Nuli, executive chairman, Labuan IBFC, told Khmer Times, “Companies from Cambodia can set up their base in Labuan or use Labuan structures to venture overseas. Companies, banks, insurance firms, etc, who consider expanding their operations overseas can look at the option of Labuan IBFC. I’m very happy with the response we received from Cambodia so far.”
Labuan IBFC said it is the fastest-growing captive domicile in the region, with the jurisdiction holding 63 captives as of 2021.
Explaining the significance of the captive insurance sector, Gerard Roy Suresh Sharma, chairman, Labuan International Insurance Association, told Khmer Times, “The captive market is growing exponentially now because the insurance market is going through a hard phase globally. The rates have gone up for a variety of economic and climate change issues.”
The Labuan captive sector continued to gain momentum with 13 new players and total gross premiums increasing by 14.3 percent in 2021 despite operating against the background of a hard market, a Labuan IBFC release pointed out.
Looking at the prospects of consistent economic growth in the Kingdom, Sharma said, “The Cambodian economy is growing and developing at an amazing pace, and it is going to have a lot of prosperous businesses and tycoons. When you look at the number of assets being developed, there are many more opportunities and challenges to grow. As the business grows, the risk grows. At the same time, when business grows, new risks will emerge. So, the question would be is that how do I manage that? Yes, there is a great opportunity for Cambodia. I don’t expect everybody to go out and get captives. But I am very sure that some large companies or businesses are sitting down a lot of assets and risk and paying thousands of US dollars as a premium. They can consider captives as a better option.”
Labuan IBFC said it provides services and solutions in niches such as asset leasing, risk management, commodity trading, wealth management, international business companies and Islamic financial services to global businesses looking at penetrating Asia and Asian entities aiming to go global.
As of the third quarter of 2021, its total premium increased by $71 million, primarily due to the premiums underwritten by captive entities. The premium for captive business has increased by 28 percent, with 18 new captives approved as at the third quarter of 2021, the release added.