Why D&O Coverage Is a Natural Fit for Captives, And Why Its Popularity Is Surging

In the evolving risk landscape, more companies are turning to captive insurance solutions to gain control over their coverage, particularly in areas where the commercial market has become costly or constrained. One of the fastest growing lines of coverage in the captive insurance space is Directors and Officers (D&O) liability insurance, and for good reason.

D&O insurance, which protects corporate leaders from personal losses stemming from decisions made in their official capacities, has become a natural fit for captives. Here’s why.

Market Volatility and Rising Premiums

Over the last several years, the commercial D&O insurance market has experienced significant tightening. Premiums have risen sharply in some cases by double digits year-over-year especially for companies in high-risk sectors or those with ESG, cyber, or regulatory exposures.

These market dynamics have pushed many organisations to seek alternatives. Captives offer a way to stabilise costs over time and avoid the pricing rollercoaster of the open market.

Customisation and Control

Captives allow for tailored policy design that reflects the company’s unique risk profile, governance structure, and claims history. Unlike traditional insurers that may impose broad exclusions or cookie cutter terms, a captive can offer customised D&O coverage, including:

• Narrower or no exclusions (e.g., for cyber or securities actions)

• Tailored limits by board or officer role

• Claims-made or occurrence-based terms

• Side A, B, and C coverage flexibility

This level of control is particularly valuable in the D&O space, where coverage disputes or misaligned terms can lead to costly litigation or uncovered exposures.

Coverage Stability and Continuity

A captive provides long-term coverage continuity, even in adverse market cycles. When reinsurers pull back or pricing spikes in the commercial market, the captive can act as a consistent risk financing vehicle reducing the risk of gaps in protection for leadership.

For companies concerned about reputational risks or regulatory scrutiny tied to lapses in D&O coverage, this stability is crucial.

Access to Reinsurance and Excess Markets

By writing a layer of D&O coverage in a captive, organisations can access reinsurance and excess markets more efficiently. The captive can take a meaningful retention say, the first $2M of loss and then purchase excess layers more strategically above that.

This layering approach helps reduce costs while still protecting the company and its executives against catastrophic losses.

Growing Acceptance and Regulatory Maturity

Historically, regulators and stakeholders were cautious about D&O in captives, particularly for public companies. But that’s changing. As captive governance improves and industry best practices mature, D&O is becoming a mainstream line of coverage in the captive world.

More domiciles are embracing this trend, and even the IRS has softened its stance in certain contexts, especially when the captive is well-capitalised, writes diversified risks, and operates with a clear risk transfer purpose.

The Numbers Tell the Story

According to recent industry surveys, D&O liability coverage is now among the top five most common lines written in new captives particularly for lare private companies, nonprofits, and even mid-market organisations with growing risk complexity.

Companies forming new captives are increasingly building D&O into their feasibility studies from day one, recognising it as a core strategic line alongside property, general liability, and cyber.

Final Thought

For organisations seeking a smarter, more resilient approach to executive risk, placing D&O liability into a captive makes strategic and financial sense. With the right structure, governance, and regulatory alignment, a captive can provide board members and executives with the assurance and protection they need  while reducing long-term total cost of risk.

At Capvartis, we help organisations model and implement captive solutions that are built for the realities of today’s risk landscape. D&O is no longer a fringe use case  it’s fast becoming a cornerstone of modern captive strategies.