Richard Boutcher 24-Jul-2014 09:57:00 9 min read

Data: the key to the future of captive management excellence

Paul Buckle, of Eurobase, discusses what effective data management can do for the captive business.

 Data is big news.  It’s so big, it’s even called ‘Big Data’.  It is touted as a miracle cure for all your business issues. But what is data and what can it really do for your business? A level headed approach is needed.

Data is all the information your business gathers in its day-to-day operations.  In itself, it is not very exciting.  The magic happens when you put in place a system to collect, store and analyse the data in a way that adds value and meaning.  Well designed and agile software can be the bridge that transforms small pieces of data into meaningful information.

By throwing light on inefficiencies and drivers of profit, turning regulatory burdens into proactive management tools, and revealing new paths of growth, it can quickly become an invaluable management tool.  You will probably wonder how you managed without for so long.

At a recent European Insurance Forum panel discussion, one member commented: "This is not a change to be afraid of, as we already have people in insurance companies like actuaries who can deal with this amount of data. The point is not just that we have this data, but that we do something useful with it. Education is the key."

For captive management, the data revolution has arrived at a timely moment.  Although never explicitly stated, captives have historically been used to take advantage of tax regulations, or to benefit from investment income.  Recent and impending changes to legislative and regulatory regimes have reduced some of the tax advantages of captives. Economic factors have taken away the advantages of investment income.

In this new environment, captive managers are being more innovative and diversifying in order to better serve their clients.  There is also the threat of new players joining the market, who do not have legacy issues and have already taken the innovation leap to deliver new solutions.

For captive managers, the proactive management and analysis of data is becoming an imperative, and technology will be the key to unlocking the treasure chest.

The starting point is data collection.  A good technology platform will ensure high quality data capture through a system of validation, rules and checking.  Process controls will ensure users operate within the limits of their authority, and thereby achieve an important corporate governance objective.  Automation and mapping data flows through an integrated platform will eliminate re-keying risks, thereby saving time and money.

By implementing a controlled processing system, it is much easier to demonstrate to regulators, shareholder and other stakeholders, that the business is functioning efficiently and transparently, within regulatory and corporate boundaries.

Poor or inaccurate data will result in poor and inaccurate analysis, which will result in poor decisions.  Getting the foundations right is crucial.  There is a vast amount of inaccurate data in the insurance industry, and indeed other financial sectors.  Staying on top of data within an organisation is not easy, but good systems and processes can remove a significant number of hurdles.

An important quality here is flexibility.  Your technology needs to be flexible enough to accommodate the needs of your business today, and its aspirations. Rather than seek separate solutions for different services or products, the business should function around a single platform that bends to business needs.

By embracing a single, multi-functional system, your organisation can achieve ‘data-centricity’.  In a data-centric organisation the value of data is recognised and it becomes a fundamental business asset. Data analysis informs business decisions that drive the business forward.

Naturally there is a cost to adopting a central operating system, especially for companies moving from multiple databases and spreadsheet based work.  There is also the issue of data migration.

How do you move your old data into the new system without losing its integrity and value?  Three basic choices are available.  The first is that you don’t migrate, but simply pull data off the old system as it is needed.  Although this might sound like a simple answer, there are costs associated with maintaining legacy systems.  There are also more opportunities for human error to impact results.

The second option is to migrate everything over to the new system.  This requires careful planning and implementation to ensure daily operations are not compromised. The final option is to set up a data store on a system that is compatible with your new core operating platform. Data can be pulled off the store and into your new system seamlessly to allow reporting and analysis.

This is a very simple overview of the options available, and which one is right for you will depend upon your budget, needs and goals.

The choice here will determine the overall investment required.  And that is how it should be viewed; as a necessary business investment, not a cost.

The real cost lies in failing to move forward and leaving your business vulnerable to new, agile, efficient competitors.  The real cost lies in falling foul of regulators. The real cost lies in inefficient processes which means your company has higher operating costs.

A recent survey of commercial underwriters in the USA, by Accenture, found that 93% perceived investment in insurance technology and systems as the best way to improve underwriting quality.  That is a startling number. 

In addition, two-thirds added that it was already making a significant difference.  Countering this finding was the fact that more than half claimed it has also increased their workload and 81% say that is due to a lack of data integration.

“There is no question that technology has brought a step change in the quality of insurance underwriting in recent years,” said John Mulhall, Accenture management consulting lead in North America. “But the full benefits of technology investments in terms of productivity and efficiency cannot be achieved without broader data and process integration across the organisation.”

By turning your business into a data-centric operation, you will know immediately where processing inefficiencies are holding back business, or where losses are quietly accumulating.  And this information will be available to you immediately, rather than in three months’ time when someone has processed the information through excel spreadsheets.

Importantly, regulators have started voicing concerns about the role of captives.  In the USA state regulators are now openly stating their desire to see the legitimate insurance issues that captives were addressing, rather than tax or financial benefits.  The pressure is mounting to demonstrate that a captive is delivering real insurance value, and is not simply a tax avoidance tool.

Granular, real-time, reporting data allows captive managers to better manage the captive and improve the service to their clients, the captive owner, without a huge effort to collate the information together.  Timely reporting becomes a more simple process, and if data is required between reporting timeframes, that information is to hand.

Beyond the ease of data management internally, a fully integrated system can tap into external sources of data to improve underwriting management.  For example, by interacting with health data sets or scientific climate data sets, underwriting becomes a richer discipline. For captive managers, providing this level of quality of data will deliver a step-change in management and deliver a significant competitive advantage.

As published in Captive Review, July 2014