How Captive Insurance Can Strengthen Risk Governance Beyond Risk Transfer

Captive insurance has traditionally helped organizations determine which risks to retain and which to transfer to commercial insurers. However, captives may also play a broader role in identifying financial exposures, strengthening risk governance, and supporting capital allocation decisions, particularly for complex, capital-intensive projects.

In the November 2026 issue of Captive Insurance Company Reports (CICR), Dr. Marcus Schmalbach examines how captives can move beyond traditional risk financing to help organizations better define, measure, and manage financial exposures before losses occur.

In his article, "Beyond Risk Transfer: How Captive Insurance Is Reshaping Risk Governance," Dr. Schmalbach explains that financial commitments do not necessarily represent the amount of capital actually at risk. For example, a development project with a $100 million financing commitment may have only a portion of that amount deployed at any given time. Some funds may remain undrawn, while others may be invested in land, equipment, engineering, or other assets that retain value if the project fails.

Distinguishing between committed capital, funded exposure, and potential recoveries can provide a more accurate assessment of financial risk. According to Dr. Schmalbach, treating the entire financing commitment as exposed from the outset may overstate the actual risk and make it more difficult for insurers and investors to evaluate the transaction.

Connecting Risk Governance and Capital Allocation

Dr. Schmalbach argues that captives can help organizations establish controls around when capital becomes exposed. This includes requiring evidence that project milestones have been satisfied before additional funding is released and determining whether assets acquired through the project could provide recoverable value.

However, potential recovery must be supported by more than an asset's estimated value. Legal ownership, contractual rights, transferability, and the time required to convert an asset into cash can all affect how much may ultimately be recovered.

These distinctions can also influence how risk is allocated among the organization, its captive, and commercial insurers. Rather than seeking coverage based on an entire project budget, organizations may be able to identify the remaining financial exposure after accounting for funded amounts, supported recoveries, and retained capital.

Dr. Schmalbach suggests that this approach could allow external insurers to evaluate more clearly defined layers of risk, potentially reducing uncertainty in underwriting and pricing.

The article also considers the role of artificial intelligence (AI) in supporting risk governance. AI tools may help review contracts, identify missing documentation, monitor funding requests, and assess recovery assumptions. However, Dr. Schmalbach cautions that automation cannot substitute for reliable evidence or sound financial controls.

Ultimately, the analysis presents a broader potential role for captive insurance: connecting operational information, financial commitments, and risk management decisions to help organizations determine not only how much risk to retain, but when and how that risk arises.

Read the full article, "Beyond Risk Transfer: How Captive Insurance Is Reshaping Risk Governance," in the November 2026 issue of Captive Insurance Company Reports (CICR).

The article is available to CICR subscribers through Vertafore ReferenceConnect and IRMI.

Vertafore ReferenceConnect Subscribers

• Beyond Risk Transfer: How Captive Insurance Is Reshaping Risk Governance 

IRMI Subscribers

• Beyond Risk Transfer: How Captive Insurance Is Reshaping Risk Governance 

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