Captive Insurance Solutions for Rising Transportation Industry Risks

With more vehicles on the road than ever before, the risks of accidents, cargo damage, and worker injuries have also risen. Add driver shortages, fuel-price volatility, and business interruption, and transportation companies face mounting challenges.

These difficulties go beyond road transport—rail, air, and other modes are also affected, contributing to higher and more frequent claims.

"Jury verdicts in liability cases are rising, driving up loss costs and commercial insurance pricing," said Andrew Noga, captives director at the South Carolina Department of Insurance. "In some transportation lines, such as trucking, heavy competition and market conditions, including the potential for reduced incoming foreign freight, are also pressuring profit margins. The combined impact of verdict risk and market pressures is placing a financial squeeze on companies, both in terms of net margins and losses."

Jeremy Colombik, managing partner at Management Services International, added, "On the more traditional side, rising claims frequency and severity are driving up liability premiums, putting more financial strain on insureds. Increased underwriter scrutiny of cargo losses, shipping practices, and employee injury claims adds to loss expenses for both general liability and workers compensation policies."

Derek Freihaut, principal and consulting actuary at Pinnacle Actuarial Resources, said, "A lot of what we are seeing are economic challenges related to inflation, which has been up and down due to the macroeconomic environment, which impacts trucking firms quite a bit. The overall economy affects, for example, the ability to hire quality drivers to make sure they are adhering to the firm's driving safety standards."

As a result, insurers have tightened terms, raised rates, pulled back on coverage, or exited the market altogether. Marsh reported a 20–25 percent jump in average annual rates for commercial trucking between 2019 and 2021.

"For the past several years, transportation firms have been facing a very difficult insurance market, as higher insurance premiums are being driven by the effects of higher costs and social inflation," said Anthony Burke, principal and consulting actuary at Milliman. "On the operational side, companies are facing higher equipment repair costs, driver shortages, and wage inflation. Given the current economic uncertainty, including the potential impact of tariffs, we expect these challenges to continue."

In response, captive insurance has emerged as a viable, cost-effective alternative. Captives enable transportation companies to better control premiums, coverage, and claims—and to reinvest underwriting profit, investment income, and dividends into safety and loss-control programs. In some cases, captives handle part of the risk while traditional insurers cover the rest.

"Over its history, the traditional insurance market has had significant increases in premiums and also issues with availability of coverage. Moving some of a firm's more traditional coverages to a captive, or using a self-insured retention or a large deductible allows a company to mitigate the impact of that underwriting cycle," said Mr. Freihaut. "It also gives them more control over their premiums and provides more incentive to reduce the cost, as well as informing safety discussions, innovation, and, ultimately, prevention of losses."

Captives also provide access to reinsurance and can cover state and international risks.

"Each transportation company has its own unique set of exposures and operations," said Mr. Burke. "In situations where the traditional insurance market does not adequately recognize a company's unique risk profile, a captive serves as a great alternative that allows the company to take a hands-on approach to managing its insurance and risk financing needs."

Transportation Risks

Data from the Bureau of Transportation Statistics, National Highway Traffic Safety Administration, and Federal Motor Carrier Safety Administration show that total miles driven in the US have increased year over year since 2011. Highway accidents involving large trucks and buses have also bloomed. The National Safety Council reported that 5,700 large trucks were involved in fatal crashes in 2021—a 49 percent increase from a decade earlier.

According to a 2020 American Transportation Research Institute report, the average trucking verdict increased from $2.3 million in 2010 to $22.3 million in 2018 (up 967 percent), and the report characterizes mean awards as rising about 51.7 percent per year over that period.

"The marketplace is remaining hard due to nuclear verdicts and settlement increases," said Kevin McGinley, vice president of captive management at Risk Management Advisors. "Our transportation practice has forecasted rate increases for auto liability between 10 percent and 20 percent, and umbrella increases between 10 percent and 30 percent."

Emerging Risks

Transportation companies also face new challenges: cyber attacks on telematics and Global Positioning System, supply chain disruption from tariffs, and the rise of autonomous trucks.

"As businesses become more digitized with telematics and autonomous systems, they are increasingly prone to cyber-attacks on fleet management software, route planning systems, and stored customer data," said Mr. Colombik. "Weather patterns have also become less predictable, leading to premium increases and more exclusions for floods, wildfires, and hurricanes. At the same time, rising jury verdicts and litigation are having a greater impact. With more nuclear verdicts, insurers are reducing capacity and raising premiums. The result is that excess liability layers are not only harder to place but also more expensive."

He also emphasized the need for a thoughtful risk-review process.

"When it comes to determining which risks are best suited to a captive, companies should review their current policies, loss runs, and premium spend to identify exposures aligned with their goals and objectives. Then, evaluate safety protocols and historical performance. Once that has been determined, we review what safety protocols are currently in place and what their historical results have been," Mr. Colombik said. "We like to understand what telematics they are using along with any cameras and electronic logging devices they may use. From there we review the loss history and get an understanding of any large losses over $250,000. Also included is a review of their hiring practices and training for new hires, and any ongoing safety training that is in place."

Captive Insurance Structures and Applications

Transportation companies have several captive or self-insurance options: single-parent captives, group captives, risk retention groups, association captives, high-deductible/self-insured plans, and fronted arrangements. Some organizations mature into admitted stock insurers once they build sufficient scale.

Each model offers unique benefits: single-parent captives offer control; group captives provide pooled risk and safety programs; risk retention and association captives serve niche or regional markets.

Captives are particularly effective at absorbing frequent, predictable claims—like cargo damage, minor accidents, or workers compensation—while shifting catastrophic exposure to commercial or reinsurance markets. They also help companies contest frivolous claims, control defense costs, and match premiums to actual loss experience.

Mr. Colombik added, "A properly structured captive gives the insured more control over claims and allows premiums to be actuarially based on loss history rather than commercial market pricing. Profits remain in the captive, strengthening solvency and supporting either greater risk retention or profit returns. Captives also enable coverage for nontraditional or emerging risks often excluded by commercial insurers."

Group captives are especially appealing: they allow transparent claims processes, faster resolution, and preferential insurance terms. Members with strong safety records form preferred risk pools, benefit from risk control programs, and may receive dividends from unused loss funds.

Coverage Lines and Captive Insurance Domiciles

Common lines placed into captives include auto liability, auto physical damage, workers compensation, and cargo, where much of the premium falls in the first $250,000 to $1 million of each claim.

"Captives normally retain the frequency risk layers such as $250,000 or $500,000 per claim," said Mr. McGinley. "With advanced safety technologies, rigorous hiring practices and proactive risk management procedures, this can reduce frequency risk, allowing a company to secure underwriting profit and still arrange cost-efficient coverage in the commercial market for larger claims."

Captives are licensed globally, with major centers in Vermont, South Carolina, Bermuda, the Cayman Islands, and Europe—particularly Luxembourg. These jurisdictions are known for their robust risk management requirements.

"From a regulatory perspective, we look to the quality of a company's risk management program, loss history, and personnel," said Mr. Noga. "Liability risk is an inherent element of the transportation industry, and how a captive addresses its risks—and innovates to curb them—influences regulator views on performance. We regulate for solvency, but risks often emerge before they show on financial statements. Understanding business risk helps manage financial outcomes."

Risk Management and Future Outlook

Companies are increasingly deploying telematics, dashboard cameras, and artificial intelligence (AI) to analyze driver behavior and reduce loss.

"The commercial transportation sector is more attuned to the captive market because the insureds are more sophisticated insurance buyers and understand the product," said Mr. Freihaut. "Transportation firms also tend to innovate more, with telematics and drivercams in vehicles. This trend will continue with AI and machine learning improving real-time data collection and analysis."

"With continuing rate increases and excess capacity pressure, transportation captives will likely increase retentions and, for mature captives, participate further in their excess towers," said Mr. McGinley. "Smaller firms are increasingly entering the captive space via group or cell captives, pooling risks to access better pricing and coverage."

Mr. Colombik added, "I see captives becoming a larger part of the transportation market. When utilized properly, they can benefit both insureds and commercial markets. If the two work together, the outcome is better for all, but the challenge is finding balance and the right partners. Some are unwilling to work with captives because there's no perceived need—and it's often easier to just increase premiums rather than invest time to understand how captives can protect [insurers'] bottom lines. The captive market can work with brokers to educate them on how captives operate. We need to better educate people on different captive types and how they can support client retention without affecting agency profitability."