The captive industry has raised a significant amount of capital both in terms of start-up companies, existing insurance companies and reinsurance companies, as well as Lloyd’s syndicates raising capital.
This statement was made at the Vermont Captive Insurance Association (VCIA) 2021 conference in a panel that reviewed the industry’s response to the COVID-19 pandemic.
Captives are structured to allow companies to set aside reserves to maintain their financial position during volatile market conditions, and are used by catastrophe modelling teams to insure against natural disasters.
Even before the disruption of the pandemic, captives were widely used to insure against unforeseen events.
During the panel discussion, Hugo Crawley, chairman, TigerRisk Partners (UK), identified that the captive insurance industry saw changes on a macro level arising out of the pandemic, which identified several vulnerabilities.
“In the last 18-24 months there has been a significant amount of capital raised in the industry. I think everyone was anticipating that there would be much greater losses in the market than has actually been the case,” said Crawley.
According to Crawley, about $14 billion of new capital has come into the market, which is significant.
He added that as a result of the pandemic, there would be a far harder market and hardening insurance market and indeed a hardening reinsurance market too.
“It is not that there hasn’t been losses but it’s to correct the balance sheets of the past as well as looking at what the needs are going forward,” explains Crawley.
In terms of lessons learned based on the UK experience, Crawley noted that although the market shutdown, London “remained open”.
People were still able to trade but they had to adapt to a lot of new technology and find new ways to endorse the whole placement and processing of business, panellists agreed.
It was also agreed that while new products and innovations were challenging, the pricing environment was more favourable for insurers and there was an increased focus on price adequacy. It was further noted that specialist lines attract more capital/new entrants.
The panel then discussed what the client claim landscape looks like, and Michael O'Malley, managing director, Strategic Risk Solutions Vermont, discussed the impact on business interruption exposure.
O’Malley noted: “We have a quick-service restaurant group captive that's in 48 US states. We studied the COVID-19 related general liability (GL) and worker's compensation claims.”
He continued: “There was very minimal shutdown in those locations, so they effectively went from a drive-thru/in store experience to a pure drive-thru experience, but over that time, we've tracked one worker's compensation claim to GL claims.”
“All three were very minor. So I think it just goes to show that businesses in the US, and around the world, did a great job of adjusting to the change in climate and exposure, and it's reflected in claim activity.”
Later during the discussion, Gail Newman, vice president, risk management, Bright Horizons, talked about business continuity planning and disaster recovery.
Newman outlined: “Some things that we are doing in order to comfortably approach our captive is strengthening our enterprise risk management approach with more focus on our risk register, how we manage the risk, and it’s about having risk owners communicating frequently with those owners and assessing the strength of their mitigation plans. It’s a very iterative process now.”
