Captives can solve supply chain risks: HDI Global

As global supply chains continue to face disruptions from pandemics, geopolitical tension, and sustainability pressures, businesses are turning to captives as a flexible and strategic solution. 

That is the view of Dan Sammons, captive manager at HDI Global, who explained to AIRMIC Today how these self-owned insurance entities offer vital support where traditional insurance often falls short.

“We were globally unprepared for COVID,” Sammons said. “Insurance companies excluded pandemic almost immediately going forward, and that’s really one of the benefits of having a captive—you have a ready-made insurance company there to take risks that are difficult to place in the market.”

Supplier protection needed

Supply chain fragility was laid bare during the pandemic, but challenges persist beyond health crises. Insurance companies do offer supplier protection, typically tied to material damage, but the cover is understandably limited. 

“The choice of supplier is a business decision, not an insurance one,” Sammons said. “Insurers cannot give carte blanche to cover every eventuality that leads to supply disruption. It would be like insuring my salary until retirement—there’s a moral hazard.”

That moral hazard—where an insured has no incentive to mitigate risk—is exactly what makes insurers cautious. However, captives allow businesses to tailor cover to their unique risk exposures without overstepping commercial insurers’ risk appetite.

“If you’ve got a captive and you’re looking at the current geopolitical climate or future pandemics...there are so many perils that insurance companies cannot cover due to lack of data or moral hazard. Having a captive allows businesses to collaborate with Insurers and assume those risks the Insurance market cannot,” Sammons added.

Captives solutions

He illustrated this with a striking example: an ESG dilemma. “If one supplier was damaged and they had to replace them with a less environmentally friendly option, it would create an emissions issue. 

“We could work with a captive on a solution where the claims payment would be used to purchase carbon credits to offset that deficit. That’s not something commercial insurers are in a position to easily do.”

Captives offer more than flexibility; they also create a framework for innovation. “We talk about non-damage business interruption all the time,” Sammons said. “We have a client where we cover their non-damage business interruption purely into the captive. It allows them to incubate that risk, gather data, creating the option to later return to the market with a meaningful proposal.”

Captives are especially useful in dealing with regional exclusions or coverage gaps imposed by insurers. “If we wouldn’t cover a supplier in a certain country due to prior bad experience, the captive can step in. Maybe that supplier is crucial—there’s no alternative. The captive can bridge that gap.”

Tailored solutions

In an environment where global shocks have become increasingly complex and unpredictable, captives offer a microcosm of all the issues clients face. “They make a huge difference,” Sammons added. “They allow for tailored risk management strategies that align fully with a business’s operations, even where commercial insurers struggle to follow.”

With supply chains under constant pressure, captives are proving not just relevant—but essential.

Boosted captives team

HDI Global last month bolstered its captive offering by appointing Phil McDowell as global sales & distribution lead for international programmes and captives. He will focus on strengthening relationships with global brokers and enhancing HDI Global's international programmes (IP) and captive offering.

McDowell, a Chartered Insurer, has previously held senior roles at RSA and Allianz. HDI said, adding that his strategic insight into the multinational insurance sector, coupled with a robust background in relationship management, makes him ideally suited for this role.

For more news from AIRMIC Today, click here.

Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.