From: Captive International

Captives need to showcase their value, and a major component of this is adhering to and sharing best practices, as eight industry experts explain.

The effects of the COVID-19 pandemic and the current hard market have fueled rapidly rising interest in captive insurance. This represents an opportunity to market the sector, ensuring people fully understand the benefits offered by captive insurance, and can make informed choices about how to move forward.

“We absolutely need to take advantage of this point in time to showcase how captives are properly used to assist organizations during varying economic conditions and turbulent insurance markets,” says CICA president Dan Towle.

“Captives have played a very important role during this pandemic, and we all need to tell our stories and do it publicly. We need to put a face on this industry and the only way that happens is when organizations share that they have a captive insurance company and explain the purpose it has in helping them better manage their risks.”

Marketing needs to take place on multiple levels: not just highlighting the value of captives themselves, but also promoting domiciles—and it’s important to make sure risk managers can confidently communicate the value of captive insurance to their organizations.

“The industry has done a good job of marketing itself,” says Courtney Claflin, executive director–captive programs, University of California Office of the President. “Obviously, you can always continue to try to do better but I don’t think it’s a tough nut to crack. The education given to organizations’ risk managers can ensure those risk managers feel more comfortable with captive arrangements and the dedication and investment that you need to put into it.

“There’s a segment of the risk management community out there that isn’t using captive arrangements today, not because they can’t but because they’re not curious enough to look into it, or they don’t understand. They think they don’t have the money to invest in that.”

Claflin adds that domiciles are becoming more active in marketing themselves. “I’ve seen domiciles become much more marketing-oriented in the last few years than they were, say, a decade ago,” he says. “Now, if you go to a conference, you could see 15 to 20 domiciles represented, which I believe is a good thing.”

The more players in the industry and the more diversity of thought, the more creative risk financing will become”

Cheryl Baker, Blue Cross Blue Shield of Michigan

Focusing on single parent captives, Joel Chansky, principal at Milliman, adds that captives cost money to own and operate, and also tie up capital in a regulated company that could be used for other purposes at the parent level, so showcasing the value of captives, both economic value and non-economic value, is essential for risk managers.

“If senior management is not sold on the captive concept, it won’t fly,” he says. “For domiciles, the cost/benefit analysis can be a bit more complicated. Usually, premium taxes or fees don’t cover the cost to regulate captives, but other trickle-down benefits related to jobs created, visitor traffic from board meetings and conferences—and the corresponding money spent in the local economy—are important for state/country governments to understand.”

Cheryl Baker, manager, risk management services at Blue Cross Blue Shield of Michigan, agrees that to showcase the value of captives, risk professionals must communicate effectively to all key stakeholders.

“This requires having good captive service providers to keep one abreast of the changing insurance and risk financing landscape,” she says.

“Communicating the potential cost-savings, as well as the strategic utilization of a captive is vital. Strategic utilization might include expanding coverage terms and conditions, partnering with commercial carriers (fronting, coinsurance, quota shares, etc) and accessing the reinsurance market directly.

“From a captive owner’s perspective, domiciles need to communicate all of these same things, as well as tout the benefits with regard to costs, regulatory expertise and ease of navigating the regulatory roads in their domicile.”

Besides marketing itself to organizations seeking insurance solutions, the captive insurance industry also needs to bring in new recruits; it is widely recognized that the industry is facing a recruitment problem as more people retire, and marketing efforts can help to attract talented incomers and to inform the insurance buyers of the future about the benefits of captive insurance.

“We need more people,” says Mary Ellen Moriarty, vice president, property & casualty at EIIA. “Over the past 20 years, college graduates have been seeking employment through companies they believe to be exciting: technology, engineering, entertainment. The aim for the insurance industry should be an intentional effort in reaching out to college grads and educating them on the sophistication of the insurance industry.

“It is a wonderful career and will always be a necessary service.”