Bench & Bar March/April 2026

FEATURE: POTPOURRI

NO LONGER ALTERNA RISK MANAGEMENT, CAPTIVES ARE MAINSTREAM INSURANCE TOOLS FOR PUBLIC AND PRIVATE ENTERPRISES BY AMANDA S. LUBY

THE CAPTIVE INSURANCE LANDSCAPE Ernst & Young reported in late 2024 that captive insurance companies now “repre sent nearly 25% of the overall commercial insurance market, having diverted hundreds of billions of dollars in premiums from tra ditional channels in the last decade.” 1,2 Most Kentucky lawyers, however, have probably never heard of captives (and lawyers in this state are not alone!). 3 Few law schools offer classes on insurance law. Eastern Kentucky University offers a bachelor’s degree in risk management and insurance, but the Univer sity of Kentucky currently lacks insurance industry curriculum. The University of Louisville only recently added one course on insurance, but there is not a university in Kentucky (and few anywhere) that offers courses on the captive insurance industry, specifically. So, what are they? A “captive” (or “captive insurer”) is a corporate affiliate or subsidiary

that insures the organizational property/ casualty risks of its parent or affiliates. 4 Businesses have consistently used captives since the 1950s. 5 There are more than 10,000 captives in the world that collectively write approximately $62 billion in direct premi ums annually and outperform commercial insurers by 17 points. 6 According to the Captive Insurance Companies Association (“CICA”), an industry trade association, nearly all Fortune 500 companies own at least one captive, and the “preponderance” of Fortune 1000 companies use captives to insure at least some of their risks. 7 This thriving industry is active in Kentucky; but (not including risk retention groups), Ken tucky currently lists only 31 active captives on its website. 8 Risk Retention Groups (“RRGs”) are formed under the federal Liability Risk Retention Act of 1981 9 which enables them to oper ate across state lines as admitted carriers, but like all other types of captives, RRGs

are largely regulated at the state level. Ken tucky passed its captive enabling legislation in 2000, 10 updated it in 2005, and for a time, was at the forefront of domiciling captive insurers. However, during the past 10 to 15 years, Kentucky’s captive insurance industry has become more conservative. This is partly due to the failure of the state’s School Boards Insurance Trust (a state owned captive), 11 as well as federal scrutiny of ”microcaptives.” But, the end result has been that Kentucky is much less competitive than other states. Tennessee, for instance, is one of the top captive domiciles in the U.S. because of the staunch commitment it receives from its executive and legislative branches (a common theme of successful captive jurisdictions regardless of political party). 12 This is the perfect time for Kentucky to re-commit to encouraging the captive insurance industry in this state. The com mercial insurance market is struggling,

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