As strategic risk financing tools, captive insurance companies are supposed to give their corporate parent companies a cost-efficient alternative to traditional insurance coverage and a host of other tactical benefits – so with digitalisation sweeping the traditional (re)insurance markets, it’s little wonder an increasing number of captive owners are exploring how to modernise their captives to keep pace.
In the last year, we have seen a significant uptick in interest among captive owners in implementing a policy administration system (PAS) to digitalise their operations, drive operational efficiency and meet their accounting, reporting and compliance obligations quickly and consistently from a single system.
Using a PAS is considered standard practice among (re)insurance companies, yet there remains a number of captives – including many large and well-established ones – which still rely on spreadsheet systems like Excel to manage their business, either directly or via their captive managers. This is not only a highly inefficient drain on resources but can also inhibit performance. As one client told us recently, they struggled to keep a statement of record for the risks they wrote in Excel and did not have a true understanding of their exposures or underwriting data. It’s hard to optimise a captive’s potential when operating blind. So how can a PAS transform a captive operation? Below are a few examples:
Single source of truth
The right PAS will ensure a single source of consistent data flows through the captive operation via a single system. This enables risk, policy, accounting and claims data to be recorded, amended and analysed, bordereaux information to be digitised and linked to master covers, reports and accounts to be generated quickly and performance monitored in real-time.
Real-time visibility offers captive owners a more timely and accurate understanding of their exposures and underwriting performance. External data augmentations and analytics enable deeper analysis and inform better decision-making. With knowledge comes greater agility and opportunity, whether responding to loss trends or market conditions to preparing fair market value pricing assessments.
Combining risk, technical accounting and financial information into a single system simplifies and automates the reporting process, enabling the captive to provide regulators, reinsurers and other stakeholders with accurate, timely, compliant information.
Digitalising the administration and workflows of policies, claims and accounting saves time and money and also significantly reduces the opportunity for errors. In business lines such as marine cargo, for example, which could require hundreds or thousands of individual cargo movements to be logged at any given time, the right PAS will be able to process high volumes of information far more efficiently than humans ever could, freeing that expertise to focus on underwriting and strategic goals.
Risk management insights
Access to deeper, more timely data enables the captive to feed loss trends back to the parent company in close to real-time rather than on a lag of weeks or months, driving risk mitigation efforts at the corporate level.
Automate currency calculations
In a volatile economic environment, captives owned by multinationals must continually reassess their risk based on exchange rate fluctuations. A PAS can factor the live rates into every report automatically, removing the ‘key man’ dependency of doing this manually.
Insurance lines that may have typically been outsourced can be brought in-house and under one umbrella using a consistent, repeatable process, enabling parent companies to be more agile when expanding their captives.
Removing the pain from managing a captive
We are seeing a clear trend in a growing number of corporates with managed captives considering the switch to becoming self-managed. As part of this switch, they are recognising the need to implement the right PAS to support the increased operation processing they will need to undertake as part of this transition.
Without a digital system in place, managing a captive in-house manually can be cost-prohibitive and require significant human resources to oversee reams of risk information (which carries the risk of errors and inaccuracies), report to stakeholders and comply with captive regulations in a timely manner. It is imperative that Captive owners engage the right strategic partner who is able to provide the right, proven solution, coupled with strong supporting services including domain expertise of the Captive sector.
Captive managers too have much to gain by implementing a PAS, as many also rely on spreadsheet-based systems to administer multiple captive programmes.
Ultimately, modernising captive operations means removing the administrative slog – levelling the playing field with traditional (re)insurers and giving each captive the best chance possible to realise its potential as a strategic tool.
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