Healthcare providers feeling the insurance squeeze

In today’s volatile insurance market, securing commercial coverage has become a high-stakes challenge for many organizations—but nowhere is the pressure more intense—or the consequences more critical—than in healthcare.

Across all industries, commercial insurers hiked rates for nearly 30 consecutive quarters between 2018 and 2025-about seven straight years of price increases. Compounding the challenges from this increased cost, healthcare provider organizations face a multitude of ever-present threats-from medical malpractice suits and workers' compensation claims to property damage and cyberattacks-that could undermine financial performance, disrupt strategic initiatives, or, in a worst-case scenario, curtail the delivery of care.

Insuring against these risks is critical, but for many providers, today's escalating premiums, tighter limits, and increasing deductibles are making risk transfer and risk financing more complicated and costly. These realities are driving more providers than ever to manage their total cost of risk (TCOR) with captive insurance companies.

"Establishing a captive gives providers more control over their coverage, costs and claims, and can even become its own profit center," said Jeffrey Covington, director of healthcare research and data analytics with BOK Financial®. "With the right support system in place, healthcare providers can use captives to lower their TCOR while achieving the same or even higher level of risk transfer or mitigation. Ultimately, that can create opportunities to improve patient care."

Reasons for the hard market
While many large healthcare systems have had captive insurance companies for decades, increasingly challenging conditions in the commercial insurance market are convincing more providers to make the change.

Experts attribute the enduring hard market to a confluence of long-term trends:

• Courts and juries are awarding increasingly high damages—“nuclear verdicts,” exceeding $10 million—to plaintiffs in liability suits, especially medical malpractice.
• An increase in the frequency and severity of natural disasters, which often result in billions of dollars in insurance payouts, has driven up rates for property coverage.
• Healthcare providers have become attractive targets for cyber-crimes such as data breaches and ransomware attacks, putting them at great risk of financial loss.
• General inflation in recent years has increased prices for everything from building materials to medical supplies, and insurance premiums have followed suit.
• In response to heightened risks, many insurance companies have significantly curtailed their underwriting or exited certain lines altogether, decreasing competition and exacerbating upward price pressure.

A superior alternative
Covington explained that while commercial insurers have good reasons to increase prices based on aggregate data, companies that form captives can save by tailoring coverage to their unique needs and risks.

"Healthcare providers understand their own risks better than anyone; they have first-hand knowledge of their clinical practices, staffing patterns, facilities and history of liability claims. This sharper understanding can facilitate more accurate pricing, better insight into claims management and, ultimately, lower costs."

- Jeffrey Covington, director of healthcare research and data analytics with BOK Financial

A review by the credit rating agency AM Best highlights just how much value captive insurance companies can deliver. Between 2019 and 2024, these organizations collectively saved about $6.6 billion by keeping insurance costs in-house-adding $4.6 billion to their financial reserves and returning $2.0 billion in dividends to their owners. That's money that provider organizations didn't have to spend on traditional commercial insurance.

"When you compare how captives perform versus large commercial insurers, the difference is clear," Covington said. "Captives consistently deliver better results when it comes to managing costs and claims, which means more value for the organizations that own them."

A wide range of benefits
Furthermore, Covington emphasized the advantages of captives don't stop at the direct cost reductions. Por ejemplo:

• Unlike off-the-shelf products, captives can be tailored to address specific risks—from medical malpractice and workers’ comp to emerging exposures like communicable diseases or AI-related liability—closing gaps that commercial insurers often exclude.
• Captives allow organizations to bypass insurer markups and access wholesale reinsurance markets directly, negotiating more favorable terms for high-severity, low-frequency risks.
• Most importantly, captives let providers retain surplus when claims are lower than expected. While commercial insurers pocket the profits in good years-such as 2024, when the U.S. property/casualty industry swung from a $20 billion underwriting loss to a $27 billion gain-captives allow healthcare organizations to capture that value themselves, reinvesting surplus into employee benefits, patient care initiatives, or new clinical technology.

"Even many large organizations that have had captives for years aren't yet using them to their full potential," said Covington. "They're surprised to learn that a captive can do more than lower their TCOR; it can also help them improve resilience and foster growth."