Taking Matters Into Your Own Hands. How Captive Insurance Is Solving Risky Problems Insurance Companies Won't Touch. An Interview With Matthew Queen.

Question: who knows more about the risks of their businesses, the owners or their insurance companies?

It depends is not a satisfying answer to me. If we dig in a bit, I think instinctually we would assume that the owners would or should know more.

Part of the job of a good underwriting leader is to develop a strategy to overcome this challenge. When I co-founded my MGA, reThought Insurance, I sensed that when quantifying exposure and risk to a property against natural catastrophes, I could create a decision tree where we could not only create an asymmetrical information imbalance in our favor to overcome adverse selection, but also any competitors in the market. We would sit on a perch, peering down at the market and we would dictate the when-and-how of the engagement. This was a rare opportunity where the market turned over information expertise to the government (FEMA & the NFIP) and ignored the convergence of forces coming together that could displace the prevailing paradigm here. Right place, right time. For the most part though, we operate on an ultra-competitive playing ground, where asymmetrical information imbalances ebb and flow between insurance buyers and sellers (and their competitors) and any edge is usually fleeting between any of the parties.

I now want to flip my original question a bit: who knows more about the risks of their business, the owners or their insurance company, WHEN, the owners create their own insurance entity to insure their exposures? In this real world scenario, it seems obvious to me that any company that would go through the time, effort and expense to form their OWN INSURANCE COMPANY to insure THEIR OWN EXPOSURES, must know something significant about their business, operations and risk! That’s significant skin in the game.

Yet, this happens everyday. The captive insurance market is not well understood, which is a shame, because it is one of the valuable tools we have in our toolbox that solves a major problem around alignment of interests. With that much skin in the game, any company with a captive has to be at least more serious than the average company and likely very serious in its commitment to minimizing losses. Otherwise, what is the point of the effort and the wasted resources. So you would think that risk bearing companies with capacity at stake would figure out a way to get more involved with the captive insurance ecosystem...

But they don’t!

Which is why, I spent sometime with one of the SME’s in the space, Matthew Queen. Matthew is CRO of Goldner Capital Management. Matthew lives and breathes captives. As an attorney, he has advised captives, he is the author on the subject and now, he runs a captive for Goldner. In this episode we discussed the advantages and disadvantages (every tool has a place and purpose) of captive insurance. We are likely at an inflection point when it comes to the impact that captives will play in solving some major issues around risk. As insurers and reinsurers retrench on traditional capacity, many organizations will need to introduce a captive element to pick up the gap. And as insurers and reinsurers drag their feet on emerging risks, waiting for the coast to be clear, organizations faced with dealing with those emerging exposures today will look to captive insurance to manage that risk. Captives has been around for a long time, but there is likely to be a convergence of forces precipitating more engagement with captives and if you want to know what’s going on, Matthew Queen has his finger on the pulse.

LINKS

LinkedIn: https://www.dhirubhai.net/in/queenmatthew/

Twitter https://twitter.com/matthewqueen84

https://twitter.com/matthewqueen84/status/1476248324009250824