The “perfect storm” of insurance market conditions during the spring and summer of 2020 has generated growing interest in alternative insurance, according to panellists at the Vermont Captive Insurance Association’s (VCIA) virtual conference.
Speaking at the ‘Innovation and emerging risk spotlight: captives in 2050’ panel, Peter Foley, senior managing director at Arsenal Insurance Management, identified that 2020 has presented unpredictable challenges, with the COVID-19 pandemic exposing underlying long-term issues, as well as a gradual but accelerating transformation towards the gig-economy and insurtech investment.
Foley added the pandemic and current work from home model has raised the important question of insurance coverage, as gaps in protection have led to an interest in alternative insurance, namely captives. However, he also noted that “2020 has the potential to be a pivotal year for captives if managed properly”.
Edward Koral, managing director of BDO USA, noted that the work from home model has impacted the gig/sharing economy. As personal and work coverages have seen an increasing overlap – for example, personal property as a multi-purpose workplace – the insurance industry as a whole has seen a reassignment of where insurance risk belongs and who is responsible for it.
These questions surrounding what now constitutes occupational health and safety, as well as concerns of the privacy and security of online meeting platforms and personal data, and the status of what constitutes an ‘essential worker’ and their related healthcare insurance, Koral pointed out that insurance coverage will significantly change over the next 30 years.
He added: “This will also be seen in cyber coverage, which will inevitably expand in complexity.”
By 2050, Koral predicted there will be a reorganisation of workers compensation, disability and personal accident coverage, as well as an expansion of employer responsibility in light of evolving definitions of discrimination and bias.
At the panel discussion, Koral used the example of autonomous vehicles to demonstrate how auto coverage is likely to change as innovative products develop. “These complex machines will require a different definition of negligence, product liability coverage for errors and omissions, cyber coverage against hacking, and maintenance contracts for cost of repair,” he said.
Foley identified the current tools for change available are user-friendly technology capabilities, such as artificial intelligence and secure portals, as well as cost efficiencies, database development, and increasing demand from both consumers and businesses.
He added that over the next 30 years, the insurance industry as a whole will experience an accelerated rate of change as more services will be disintermediated, with the ability to buy, change or modify insurance directly.
In addition, Foley noted that alternative risk is likely to be consistently at the forefront of innovation, aiding the balance of growth and potential for increased regulatory oversight. He added that it will be important for domiciles to have the necessary resources to work with the private market, as well as receptiveness to new ideas.
In terms of captives, Koral viewed the structures as a solution to the chicken/egg dilemma of new businesses, whereby innovative startups cannot gain underwriting coverage with no track record, yet cannot operate without the coverage.
Koral concluded by recommending that when designing new insurance products, parent organisations “must carefully consider the bespoke risks they face, divided into third party and parent risks, but also understanding that these can overlap”.
