Andy Roderique, assistant vice president at IPFSDirect, and Greg Cobb, director of Insurance Solutions at Sage Advisory Services, discuss how effective investment and payment strategies contribute to captive growth
How does investment income contribute to captive insurers’ financial stability and surplus growth, and why is a healthy surplus essential for effectively underwriting risks in the captive insurance space?
Unlike the unpredictable and sometimes volatile nature of underwriting risk and income, investment income is more stable and can help to strengthen and grow surpluses, effectively mitigating potential underwriting losses.
Adequate-to-healthy levels of surplus enhance consistent growth and underwriting capacity.
Historically, investment income has helped offset potential underwriting losses for captive insurers, allowing them to report positive overall results. What are the implications of this dynamic for captives, and how can they strike a balance between underwriting discipline and prudent investment strategies?
Investment income is critical to profit margins, earnings, and overall positive results.
For small to mid-size insurance companies, net income is the key driver of the captive’s well-being. This income enables captives, particularly those insuring long-tail lines of business, to counterbalance potential underwriting losses, enhancing their financial strength.
What key factors should captive insurance companies weigh when developing investment strategies that align with their unique risk appetites, liquidity needs, and return objectives as captive vehicles?
Captives must strike a balance between their risk appetite, business lines, and claim payment patterns, in order to align their liquidity needs with investment strategies while maximising return objectives.
As such, there should be a parallel evolution of investment objectives, parameters, and strategies.
A more consultative and iterative approach between the captive, captive manager, and investment consultant, will drive the correct investment solution.
How can a focus on investment income and returns enhance the competitive advantages and capacities of captive insurance companies compared to the commercial insurance market?
Maximising the pool of investable assets and the resultant growth in investment income adds to a captive’s bottom line, bringing greater stability to surplus. A successful investment programme gives the captive the option to hold the line on insurance pricing in order to improve its competitive position and add value to its policyholders.
As captives look to digitally transform, how could integrating investment management and payment solutions help streamline operations and improve customer and stakeholder experiences?
Payment solutions, including upfront payment-in-full for premiums, accelerate cash flow, leading to larger pools of investable assets and investment income. Collecting premiums upfront reduces the cost of instalment billing programmes and helps to streamline the insurance sales process. The integration of premium funding and payment processing can significantly reduce the number of touches required to close the sale, bill, and collect premiums. Most often, funding and payment processing partners can offer more desirable payment options to insureds, helping smooth out their cash flow requirements while reducing the captive’s technology costs.
For captives, collecting premiums efficiently can be a challenge. How can digitising premium payments through solutions like IPFS mitigate risks and provide easy payment options?
Digitising premium payments alleviates many of the challenges captives face when creating efficiencies for their business. By selectively partnering with a payment or instalment provider, captives can create key advantages for their business by collecting up-front funding more expeditiously, giving the insureds a variety of digital payment options, and promoting a faster binding and issuing process.
Recurring payments alleviate the potential for missed payments and enable insureds to focus on their core business. Digital payments reduce overall risk while maximising time and efficiency for everyone involved.
What branding and visibility benefits could IPFS’s payment solutions offer captive insurers looking to reinforce their identities throughout the premium collection process?
IPFS provides captive insurers with a variety of options for co-branding and white-label processes to increase marketplace visibility and branding.
We help our clients create added value for their policyholders, giving them peace of mind knowing the captive has done their due diligence in selecting a trusted partner to do business with.
From your perspective, what are the key advantages of digital premium payments for captive insurers specifically, and how do IPFS’s solutions help address the risks of traditional methods?
When presenting an insurance quote, the insurer can bind more efficiently and sell more insurance by offering multiple, easy-to-navigate payment options. IPFS Direct and IPFS Payments Powered by AndDone continue to invent and innovate, paving the way for insurance payment technology.
We help insurance companies and their distribution partners do business faster and with better service than others in the market.
Looking ahead, what role will investment income and efficient payment capabilities play in driving sustainable growth and shaping the future of the captive insurance industry?
Investment income is, and will continue to be, a key driver of the long-term success of traditional insurance companies and captives. It fosters continued growth and helps pave the way for future sustainability.
Digitisation will continue to accelerate, further simplifying the sale and delivery of insurance products to offer an improved customer experience for insureds and distribution partners.
Group and association captives will continue to benefit most from more streamlined payment options and processes that elevate the purchasing experience. Upfront premium collections for ‘one and done’ transactions will continue reducing costs and creating more investment income growth opportunities.
