The growth of the captive insurance market, and the trend toward companies assuming greater portions of their risks themselves indicates a failure of the reinsurance industry to meet customer needs, a speaker told a conference on captives yesterday.

"I don't think we managed our business well,'' William Thornhill, senior vice president of X.L. Risk Solutions, a subsidiary of Bermuda-based EXEL Ltd.

said. "The uninsurable risk is the big reason why captives came to be.'' He blamed the trend on the large amounts of business that the reinsurers are writing. This led to their inability to adjust contracts to particular customers, who were left with risks they couldn't find insurance for, and costs they didn't want to incur in finding coverage. Hence the move toward forming their own captives.

A captive insures the risks of its parent corporation or a group of similar companies. Captives are usually formed because corporations find they can save money or because they are unable to purchase insurance for certain risks on the commercial market.

"What uninsurable really means is that you don't want to pay the price for the cover,'' Mr. Thornhill said. The solution was for reinsurance companies to package the uninsurable risks along with a customer's other risks in a multi-line cover. This way the reinsurer was able to use the predictable risks to offset the potential liability of the "uninsurable'' risks. Such coverage was also usually done on an extended contract, usually five to ten years, which helped the reinsurers to better assess their liabilities.

Reinsurers such as EXEL were also putting together specialised type coverages to help customers. Double trigger coverage, in which coverage kicks in if two events occur together, and the mixing of types of insurance are some of the solutions to getting new customers, he said.

Another trend in the industry was for big buyers of insurance and reinsurance to want to talk directly to the underwriters, bypassing the brokers. He attributed the trend to large companies being much more aware of their exposures and their need to ensure they were getting the coverage they needed.

Corporations such as General Electric are formalising their risks and hiring actuaries to assess those risks. Reinsurers therefore had to meet the needs of a much more sophisticated type of customer who was willing to participate in bringing risks down and cutting costs.

BUSINESS BUC