Innovation is becoming increasingly critical to the long-term success of all insurers, and “captives are no exception”, an A.M. Best report revealed. The market segment report on European captives explained that well-structured innovation allows companies to develop sustainable competitive advantages and better respond to external challenges such as low investment yields, stagnant growth, and deteriorating expense ratios. It was noted that captives are an example of innovation in the insurance space. A.M. Best said: “[Captives] were created to provide insurance solutions not readily available in the open market, to develop flexible risk coverage and to improve the risk management and loss prevention capabilities of their parent groups.” Innovation success is demonstrated by the endurance of the model and by the continuing importance of captives to their parents, the report noted. Captives make use of their privileged access to data and proximity to risks to develop customised products that cover the changing needs of their parents. The rating firm highlighted that this proximity to risks also enables captives to explore innovative ways to improve loss prevention, gathering loss information and data on risks that provide captives with significant expertise in prevention measures. Previously, captives have achieved less success with systems and technology-led innovations, but A.M. Best explained that some captives are now taking advantage of the developments in digitalisation that make it easier and more cost-effective to write third-party business to strengthen their relationships with key partners. Captives are also gaining some diversification advantages, with A.M. Best explaining that big data and actuarial developments are also supporting captives with the underwriting of new products, whether for the benefit of their parents or third parties. In August, a panel at the virtual Vermont Captive Insurance Association conference discussed the opportunities around digital transformation in the captive space. The panel suggested that a blockchain-based ecosystem made up of captive managers, reinsurers and captive domicile regulators will shape the digital future of the captive industry. Other movements in the captive insurance around innovation include the launch of the Lloyd’s Lab cohort, featuring RYSKEX, a Berlin-based start-up, offering a blockchain-based ecosystem for alternative risk transfer and innovative insurance solutions.
