#7 Captive programmes and the challenges of claims management discipline with David Vigier
Owning your risk? Let’s get into it.
The recent developments in the international insurance market are a blunt reminder to even the most seasoned industry professionals that our market operates in cycles. With over 15 years of tough price competition, the industry has made an abrupt turn back to technical fundamentals.
Why are captives needed and what do they do?
Aside from the steep increase in insurance premiums, the hardening of markets has led to a general increase in deductibles and self-insured mechanisms, of which captives are popular.
A captive reinsurer (or insurer) is a reinsurance (or insurance) company that is wholly owned and controlled by its insureds which is generally any non-insurance commercial corporation. Its purpose is to
Most large corporations already operate with this self-insurance model whilst interest in medium-sized companies is growing.
Attritional claims that insurers used to bear have now by and large moved to insured and captive balance sheets. This means captives underwrite certain risks that the traditional market no longer wants to cover but must.
What’s the impact on risk and claims management?
Companies need to up their game regarding risk management and financing because things aren’t what they used to be. Back in the day, you could purchase the cheapest policy available and typically be covered. Now, there are some risks insurance companies won’t cover as it poses too much of a liability. In these cases, insurers look at the risk quality to determine whether they can finance it. If insurers deem it unprofitable, they can drop clients who then must find an alternative. That alternative could be a captive.
Loss prevention remains key to reducing the volume of claims but this responsibility now sits predominantly with insureds and/or their captives. Corporations that historically relied on the insurance markets to absorb losses from a lack of prevention plans are now required to improve the quality of their risks and statistically trim down the number of their claims. This and the claims management discipline are critically important to control the financial impact of actual losses on their EBIT performance.
“Corporations overall have little choice but to grow their focus on the claims now hitting them and develop their skills to efficiently manage them to the best of their interests.”
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Why are seasoned insurance partners still an integral part of the transformation?
Claims management is a key function and the very purpose of an insurance company, thus corresponding skills and experience sit with insurers.
One interesting trend witnessed with insureds on the path to risk management and financing maturity (i.e. creating captives or gearing up existing ones by expanding the classes of risk they place within their captives) is that they are not only seeking partners who bring claims management expertise to the table but ones who are willing to accompany them in their claims management learning curve.
Those are the questions they face – often caught between the business challenges of their parent company and the necessity to preserve the captive’s balance and role in the long run. Insurers’ claims teams are there to assist with the captive\s long-term role.
How do insurers have to adapt?
From an insurer’s perspective, this translates into a whole new set of responsibilities: from risk bearers selling insurance capacity with their claims management team acting as a first line of defence in protecting their balance sheet to being an all-in-one risk bearer, claims service provider, and coach.
The ability to develop the business with captive programmes and build long-term relationships with this calibre of clients lies in the insurers’ capacity to adapt to this new trend.
An insurance company claims handler understandably has a closer relationship with insureds than any underwriter or salesperson as they are in permanent contact with Risk Managers and the various insured stakeholders.
What is required from them is to handle claims in cooperation with the insured, the broker, lawyers, and loss adjusters, but also to walk the insureds and their captives towards a thorough understanding of the ins and outs of claims management. Who else could secure long-term partnerships better than them?
“We, at HDI Global France are putting our claims team and the quality of our claim’s performance at the core of our strategy. We are working to improve their impact and are developing and strengthening our relationship with our insureds and their captives to prove that we are committed to bringing further robustness and resources to our claims organisation in the near future.”
What is your take on this trend? Are captives the future of corporate risk management?
Gestione e sviluppo reti distributive presso SIARD Consulting
12 个月I believe that captive models - Single Parent and PCC - will increasingly be part of the future of insurance, particularly in hard market periods. I would like to think that in the future agents and brokers will also be able to convey these solutions from a consultant and risk management perspective.
Data Based Claims Management - Thought Leader | Zuh?rer | Transformator
12 个月In my opinion, you are taking exactly the right strategic path. In order for insurers to remain relevant in the future, they must provide significant added value for the insured. I agree that risks in the market will be more widely distributed in the future and that captives will therefore become significantly more relevant. This makes it more important that insurers offer decisive added value in the service portfolio- and this is where the need for claims management of the risks for captives is highest, as it will be critical to success to manage the damage effectively and to establish an aggressive loss prevention strategy. There is clearly a lack of know-how here. In this area, a professional claims ecosystem will be built up consisting of strategic and operational consulting, prevention services and high-quality claims adjusters. Let's go for it.