Paper tigers. But despite new regulations, and despite devising ways to attract them, captive insurance remains largely a Western phenomenon. “In such a file, lawyers open a captive account and pay premium to the captive. Once you pay the premium, it shows as an expense. But they don’t recover the claim from the captive immediately and let it pile up. Such amounts are claimed only when there are other losses to offset,” explains Mohomed of Dana Insurance. “This way they are able to control the taxes.”

Not surprisingly, a number of lawyers can be found loitering around Bermuda. When they get there, they set up accounts and name the captives; they get a computer-generated number and their new company registered on paper. According to Mohomed, some industries such as explosive manufacturers or people who are dealing with hazardous goods do not get insurers. “So they form captives of their own called association captives,” he says.

David Howden, the chief executive of Hyperion and chairman of the Howden Broking Group, admits that tax is part of the reasons for having captives. According to Howden, captives are a very evolved forms of insurance, and are cut out for large corporations. “Captives work better when you have risks where you can predict what the loss ratio is going to be,” he says. “So rather than money-transfer between an insurer and a client, you put it into a captive. Liability insurance is not like that. It has sudden spikes and captives cannot take those spikes because those spikes knock you out.” London-based Howden Insurance Brokers is starting up its operations in the region by opening an office in Dubai.

Most industry observers agree that whenever captives find more takers in the region, mainstream insurance providers would feel the pinch because their revenues would be eaten away.

“Around 15 to 20 percent of the revenues in America go to captives, and it would certainly show up on mainstream insurance providers,” says Mohomed.

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