Is technology the next big disruptor for captives?

Published on Wed, 02/08/2023 - 15:04

One stand-out evolution of the Airmic Conference exhibition hall since our ‘return’ post-pandemic has been the growing number of technology companies with a physical presence to showcase their innovations for insurance buyers.

Up to now, insurtechs have largely been focused on the commercial marketplace. Getting close to large insurers and brokers is seen, understandably, as a more efficient and faster way to get your technology ingrained into the insurance ecosystem and scale at pace.

The hard market has produced further opportunity, however, to get the attention of an insurance customer being forced to think outside of the box and seek new risk financing solutions.

It has also increased the profile of captives more broadly, meaning new entrants to insurance are more aware of the growing and influential role they are playing in corporates’ insurance programmes.

As captives grow in premium and asset size, they also have stronger balance sheets that risk managers may look to deploy.

A healthy captive is not a money box suddenly giving corporates an unlimited risk and insurance budget, but there are increasing instances of the insurance subsidiary being used to procure access to technology that supports risk management and insurance procurement activities.

It is not uncommon for licences to RMIS systems to be funded by the captive, while deploying technology such as flood defence warnings – see FloodFlash and Previsico – have a very obvious benefit to the captive if it is underwriting property and assets in high exposure areas.

The latter example is exactly the same as a commercial insurer bundling in access to such flood defence technology as it underwrites a property programme. There is no reason why captives cannot do this.

Dumping spreadsheets

We may have been talking about this for well over a decade, but the ambition to “move away from spreadsheets” when it comes to sharing schedules of assets, insurance proposals and programme details has made shockingly little progress.

It may not sound like a great innovation, but achieving mass adoption and standardisation across the industry so that sensitive data can be shared in a secure, consistent and efficient way between partners will ultimately free up risk and insurance professionals to spend their time on more high-value tasks. That is where the innovation dividend will be realised.

Airmic PSP Insurwave, which has presented to the Captive Special Interest Group and hosted roundtables at the Airmic Captives Forum in the past 18 months, has targeted insurance buyers directly since the launch of its pilot with Maersk in 2018.

Insurwave’s mission is to alleviate the administrative burden on risk managers in the insurance procurement process, using its digital platform to also provide greater data insights.

Reducing the administrative burden is, again understandably, a common target for insurtechs and there are effective tools, such as Insurwave’s, on the market that can get us there.

Another is Big Ticket, which launched at the Airmic Conference in June alongside Airmic member and first client Lee Worth, head of group insurance at Specsavers.

As co-founder and CEO Robert Bartlett says, “commercial insurance is a laggard in financial services when it comes to digital innovation”, and Big Ticket has been developed as an insurance renewal data platform designed to be shared between clients, brokers and insurers.

As with Insurwave, it has been designed and built with the insurance customer as the focus, giving them more time and power to engage with the commercial market on their own terms.

Taking control

Despite captives evolving over the past 10 years from a risk financing tool to more of a centralised risk management hub, they remain largely dependent on outsourced services to conduct their day-to-day operations.

The role of captive managers and fronters are not under threat, but the days of waiting for those partners to bring you technology solutions should be over.

As captives grow in size, corporates can become increasingly confident in competing with the commercial market on their own terms.

If access to sophisticated data analytics and modelling platforms can give the captive the most accurate picture of the parent’s risk, it should have the power to set premium pricing and appetite. It is then for the commercial market to try and match or beat that pricing.

This way, the captive is acting proactively rather than waiting to see what role it needs to play and gaps it needs to fill after the commercial market has taken its position.

Speaking on a podcast in 2020, Aon’s Ward Ching described this concept of the captive being proactive in identifying a “strike price” which it wants to do business at as “Next Gen Risk Financing”.

Increasingly, thanks largely to technology and perhaps prompted by an enduring hard market, captives and corporates now have the tools and motivation to take such a step.