Defying Disruption in the Captive Industry David Beyer, Director, Risk Management, Alaska Air Group Loren Nickel, Director, Business Risk and Insurance, Google 2017 RIMS Risk Manager of the Year Ward Ching, Managing Director, Aon
Learning Objectives At the end of this session, you will: • Be exposed to new research addressing current and future trends impacting the development and use of captive insurance companies. • Receive a selected briefing regarding new economic and risk management research focused on understanding disruption as a business strategy. • Gain an understanding from captive owners/practioners as to how disruption is embraced or mitigated using captives
Di Disc scuss ssion Ag Agenda Captive Trends – Setting the Stage The Concept of Disruption How Captives are Embracing Disruption: A Working Hypothesis
Disc iscussion Ag Agenda Captive Trends – Setting the Stage The Concept of Disruption How Captives are Embracing Disruption: A Working Hypothesis
Ca Captives – th the numbers Close to 7,000 captives world wide, and growing year on year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Business Insurance 2016 Captive Managers & Domiciles Rankings & Directory, March 2016
Captives – th Ca the numbers Most captives are formed by companies in North America where risk management programs are the most developed. The number of captives continued to grow in the U.S. in 2015 up 8.2% over 2014. % increase 2010 2011 2012 2013 2014 2015 (decrease) APAC 138 134 147 149 155 158 1.9% Canada 29 31 31 32 21 20 (4.8%) Europe 957 1,015 1,007 918 921 883 (4.1%) North American offshore 2,632 2,609 2,715 2,828 2,881 2,781 (3.5%) United States 1,831 2,042 2,225 2,493 2,861 3,097 8.2% Total 5,587 5,831 6,125 6,420 6,839 6,939 1.5% Source: Business Insurance - Captive Managers & Domiciles Rankings & Directory, 2016
Co Coverages in in Ca Captives Top 10 risks written by captives Professional Property Damage & General/ Employers Liability/ Product Liability and Indemnity/ Errors and Business Interruption Third Party Liability Workers Compensation Completed Operations Omissions Liability Auto liability Marine Crime/ Fidelity Catastrophe D&O Liability Source: Aon Benchmarking Survey, 2015
Why y are companies conti tinuing to forming a captive? Even though the insurance market continues to be challenged with soft premium rates and low interest rates, an appetite for captive utilization still exists and in many ways is increasing year on year. Strategic risk management tool – Ability to establish reserves – 33% 4% Tax optimization – 4% Other – 4% Cash flow optimization – 4% Cost efficiencies/ reduction of Risk finance expense insurance premiums – optimization – 27% 8% Access to reinsurance market – Control on insurance programs – 9% 10% Source: Aon Benchmarking Survey, 2015
Ca Captives continue to demonstrate benefits 2 1 Risk Management Capacity & control • Influence program design and cost • Provides insurance coverage in • Central access to loss data and fluctuating insurance cycles = price stabilization reserving practice • Reduces the dependency on • Claims handling control image commercial preservation, avoidance of legal • markets precedents, out-of-court settlement, negative publicity • Direct access to reinsurance markets management, damage limitation • Cures market dislocation due to “best terms” requirement on quota - share placements
Benefits Be ts, cont. 3 4 Structured Direct financial retained risk benefit strategy • Greater structure and control over risk • Wedge in market negotiations management and financing • Captures insurer profits • Continuity and breadth of insurance • State tax Benefit (permanent) coverage • Acceleration of tax deductions • Reduced volatility on insurance spend • Global Cash Management • Optimize cost benefit in retention v. • Only form of self-insurance where financial transfer leverage is possible • Ring-fence risk funding
Which ind industries are usin ing capti tives? Source: Aon Benchmarking Survey, 2015
The main ty Th types of f ris risk k underw rwritten by y a captive Coverage Underwritten in next 5 years 59% Property (PD/BI) 56% General/ Third Party 45% Liability 47% Employers Liability/ 28% Workers Compensation 31% 27% Product Liability 26% Professional 26% Indemnity/… 30% 25% Auto Liability 32% 18% Marine 23% Environmental/ 15% Pollution… 19% 15% Crime/ Fidelity 22% Directors & Officers 15% Liability 17% 8% Cyber Liability 23% Source: Aon Global Risk Management Survey, 2015
Di Disc scuss ssion Ag Agenda Captive Trends – Setting the Stage The Concept of Disruption How Captives are Embracing Disruption: A Working Hypothesis
Disruption as a concept…
What else does Disruption look like?
Denise Garth: Identifying Disruption and rate of change
Denise Garth, 5 Charts on Insurance Disruption, ITL 2016
Denise Garth, 5 Charts on Insurance Disruption, ITL 2016
Denise Garth, 5 Charts on Insurance Disruption, ITL 2016
How to be a Strategic Leader in a Time of Disruption VOLATILE — The Steve Krupp and Roch nature, speed, Parayre volume, Partners, Heidrick & Struggles Leadership magnitude, and Consulting , CEO Forum 2017 dynamics of change UNCERTAIN — The lack of predictability of issues and events COMPLEX — The confounding of issues and the chaos the surround any organization AMBIGUOUS — The haziness of reality and the mixed meanings of conditions
Di Disc scuss ssion Ag Agenda Captive Trends – Setting the Stage The Concept of Disruption How Captives are Embracing Disruption: A Working Hypothesis
ASA Assurance • Original Plan – 2016 - 2018 • Workers Comp Ongoing (Alaska Airlines / Horizon Air) • Travel Accident • Workers Comp Loss Portfolio Transfer (Alaska / Horizon) • Actual Operations – 2016 • Workers Comp Ongoing (Alaska / Horizon) • Workers Comp for new company McGee Air Services • Physical Damage Liability for McGee Air Services
ASA Assurance • Actual Operations – 2017 • Replacement of commercial policy for new acquisition Virgin America • Actual Plan – 2017 • Replacement of commercial product policy for Horizon • Workers Comp Loss Portfolio Transfer (Alaska /Horizon) • Workers Comp Loss Portfolio Transfer (Virgin America) • Workers Comp Ongoing (Virgin America) • Actual Plan – 2018 • Travel Accident
Imi grows up $ in millions Current 2010 – E&O 23 covers 25
Deciding what to keep, what to transfer Access to capacity Control and flexibility Capital Administrative Severity costs Transfer Tax benefits Share Retain Frequenc 26 y
Risk Challenges ● Risks not contemplated by insurance companies ● Beta/test periods before smaller live launches ● Quick to market solutions which doesn’t match slow regulatory environment ● Some products are seen as beneficial to insurance companies and others are not, so not all insurance companies are supportive of product potential ● Wide variety of risks, many new and emerging are difficult to handle for any one insurance company 27
Moonshot Culture 28
29
Captive Solutions ● Allow for greater freedom of terms, better pricing and availability ● Allow for beta testing and smaller launches, do not need immediate scale ● Very quick to market solutions, faster than any insurance company ● Partner with insurance companies on fronting, where needed or desired ● Wide variety of risks are beneficial for the captive, as it allows for a portfolio effect and is a better use of capital ● On-staff actuarial resources ensure risk taking is not excessive and is in line with capital requirements 30
Mahalo!
Recommend
More recommend
