Insurtech
Insurtechs and captives: a match made in heaven?
The captive insurance space is waking up to the potential insurtechs hold for reducing risk, cutting claims and creating savings. We explore how captives can best engage with insurtech solutions.
A growing number of captive insurance companies are partnering with insurtechs, but engagement has arguably been considerably lower than in the commercial re/insurance space, where insurtechs are responsible for a growing number of cost and time-saving solutions across the whole value chain.
One reason that captives are lagging behind when it comes to insurtech is that many insurtech innovations may not be immediately relevant to the captive insurance space.
Derek Bridgeman, managing director, SRS Europe says: “Captives by nature tend to be limited in purpose and are generally focused on financing of low volatility risks. Combine this with the highly outsourced model most captives utilise, a captive itself doesn’t tend to have much need, at any real volume, for the services of many insurtech innovations.
“You’re talking about risk management services much more than customer interface innovations, because captives have no customers.”
David Clamp, The Camelot Network
“As a result, the commitment to capital expenses can be hard to justify. It is important that insurtechs seek ways to commoditise the fantastic underwriting, claims and data analytics tools they have developed in order to remove the barriers to entry for the captive space, and without diluting their product proposition.”
David Clamp, founder of The Camelot Network, sees no reason why captives could not be even more interested in insurtechs than the commercial insurance space is—it’s just a matter of recognising where the opportunities lie.
“You’re talking about risk management services much more than customer interface innovations, because captives have no customers,” he says. “A lot of what organisations are doing in the risk prevention space isn’t badged as insurtech, but as risk management.”
Similarly, Mark Huxley, non-executive director of consultancy company Altus, believes that when it comes to captives, insurtechs should be looking at the risk management side rather than directly at the insurance side.
“People on insurtech side come into the captives industry with a bit of ignorance about how it works,” he says. “They come in with fantastic solutions that can make whatever it is they do seem easier, but they’re not really sure the problem is that they’re solving, and they immediately go storming into the insurer market thinking they are top of the food chain.
“Often, they’d be much better looking downstream, because if they’re providing a service that creates certainty around the risk or the ability to see where the boundaries of the risk are as a risk manager, that will do well.
“They definitely don’t think about the risk community enough.”
“Everybody’s very heavy on data—the problem is that it’s just dumb data.”
Mark Huxley, Altus
Data to the fore
Huxley has, nevertheless, seen a wide range of insurtech innovations that help organisations minimise their risk, from hyperlocal flood mapping to geolocation tools and QR codes for tracking shipping containers.
“From a captive insurance point of view, everybody’s very heavy on data—the problem is that it’s just dumb data. The question is how to merge its objectivity with our subjectivity as sentient thinkers, to become better,” he says.
“I don’t think there’s enough of a R&D priority within corporations to look at the insurance part of their business and say: ‘What could we be doing better?’. A culture of innovation is led from the very top of that organisation: if the people at the top have the curiosity and the motivation to keep asking the question ‘why?’ then you start creating a culture where you fix things.
“You create an environment of ideation and experimentation within the organisation.”
“The potential for captives to increase their utilisation of insurtech is evident, in particular, around the area of data and analytics.”
Derek Bridgeman, SRS Europe
Bridgeman agrees that insurtechs have great potential to help captive insurance companies make better use of data.
“The potential for captives to increase their utilisation of insurtech is evident, in particular, around the area of data and analytics, growth in artificial intelligence (AI) and predictive modelling,” he says.
“Often this value is difficult to quantify, but as captives continue to implement insurtech solutions they increase their ability to generate more credible data; quantifiable value can be derived particularly around loss-reserving.
“Improving the reliability of reserve estimates will in turn provide enhanced insight into the drivers of claims and claim development resulting in an enhanced risk management structure and overall insurance placement.”
Ultimately, insurtechs hold the key to financial savings for captive insurance companies, enabling them to harness data and technology to reduce risk and cut losses. While many customer-facing insurtech solutions may not be immediately relevant to captives, a broader view reveals huge potential, much of which is still untapped.
“The speedier adoption of cost-reducing technologies together with the use of AI, predictive modelling and governance software to automate data and analytical workflows should enable captives, and commercial insurers, to further streamline their business and reduce costs,” says Bridgeman.
