The Captive Insurance Company Guide

8/17/2019 The Captive Insurance Company Guide

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THE CAPTIVE INSURANCE COMPANY’S GUIDE

Overcoming Data Challenges in a Regulated Environment


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WHY SHOULD YOU READTHIS GUIDE?

In order to help organizations lower their total cost of risk, insurance and risk professionalsneed to be able to instantaneously cross-examine their risk and insurance data. However, many

organizations struggle to achieve this goal, spending valuable time manually manipulating and

consolidating their enterprise-wide data. This is often at the expense of being able to add real value

to their organizations by helping reduce losses and proactively managing and mitigating risks.

This guide looks to provide a valuable insight

into how a Risk Management Information

System (RMIS) can help your organization

and, specically:

The guide is also packed with client

testimonials, insights from industry research

and practical worksheets to determine if your

organization could benet from an RMIS and

the value it can provide.

We hope this guide will be a useful resource

whether you’re investing in an RMIS for the rst

time or re-evaluating your current supplier.

1

2

3

Demonstrate what types of

businesses use an RMIS.

Explain what an RMIS does and

the value it brings.

Find out if you need an RMIS.

2015-10-21


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THE CAPTIVE INSURANCE COMPANY’S GUIDE 1

INTRODUCTION

Since 2011, the number of captive insurance companies has grownby some seven percent annually, according to the MRMR Captive

Benchmarking Report 2014. Such a healthy rate of growth suggests

parent organizations appreciate the value to be had from establishing

and managing their own insurance carrier. Aon’s 2015 Global Risk

Management Survey has conrmed the top reasons behind this trend:

REASONS FOR CAPTIVES

Reason 2015 2013

Strategic risk management tool 33% 18%

Cost efciencies 16% 18%

Reduction of insurance premiums 11% 12%

Control on insurance programs 10% 11%

Access to reinsurance market 9% 7%

Risk nance expense optimization 8% 12%

Cash ow optimization 4% 7%

Other 4% 6%

Tax optimization 4% 4%

Ability to establish reserves 4% 4%

Parent companies must constantly reviewing the performance of theircaptives, to ensure they are continuing to deliver value and remain aligned

with the corporation’s strategic objectives. With increased regulation

and governance on both captives and their associated parent, there is a

heightened need for efcient operations in the captive; effective handling

of data is at the core of this need. In particular, captives handling larger

volumes of data or with many data sources cannot afford to ignore the

needs resulting from increased regulation and governance.

As business requirements change (for instance, the captive’s need to

adapt to a change in the risk management strategy of the parent), the

technology and associated data management need to evolve with those

changes. Different types of captives will need different solutions, so it is

certainly not the case that one size ts all.

The following chapters will examine how captive managers can use

technology to overcome data challenges and the resulting benets.

Chapter 1: Key Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Chapter 2: Looking At Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Chapter 3: Understanding the Benefts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Chapter 4: Who Benefts Most? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Chapter 5; Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Chapter 6: Technology Investment Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15


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CHAPTER 1: KEY CHALLENGES

To begin with, it’s important to understand how data management is related to the key challenges captives face. As we’ll see, data is central to both

the problem and the solution to each of the challenges (all of which will be familiar to captives managers) described below.

KEY CHALLENGES FACING CAPTIVES AND THE ROLE O F DATA IN EACH

1. Increasing regulatory and corporate governance requirements

Compliance with Solvency II or the equivalent legislation, as well

as expanding corporate governance around risk management, is

a signicant challenge for many captive managers. The reporting

requirements based on legislation and standard audit requirements

can be quite burdensome. Accurate gures are key, since reporting on

gross and net positions and reinsurance arrangements will directly

impact the capital the captive has to hold. Today’s captive manager

needs control, auditability and transparency over their operational data

such as premiums and claims. The ability to access, analyze and report

on growing amounts and types of data is central to meeting the evolving

regulatory and governance mandates.

2. Parent-company nancial reporting requirements

Until recently, many captives have underestimated the challenges in

satisfying the parent company’s own nancial reporting requirements.

Yet it’s hardly surprising that corporate boards are calling for accurate,

comprehensive reporting on the captive’s potential impact on the

enterprise’s nances; after all, a captive is part of its parent’s balance

sheet. Here again, data management is crucial to providing auditable

nancial transactions that cover, for example, all premium and claims-

related activities and movements.

3. Providing data to actuaries and commercial carriers

Another challenge is giving actuaries the data they need to calculate

capital requirements, claims reserves and premium allocations. In

order to make these calculations, actuaries are being more forceful in

their demands for a higher level of scope and detail, auditability and

reliability. And when captives go to market, commercial carriers are

demanding extensive data for competitive pricing.

4. Growing risk-management requirements

More than ever, regulators are expecting captives to be run like

commercial insurance carriers, including proper risk management

policies in place as well as t and proper people in key positions

such as risk management, nance and audit. Furthermore, proper

documentation is expected. Access to accurate, comprehensive data is

a prerequisite to activities such as:

a. Managing counter-party exposure;b. Meeting strict reinsurance policy and claim notication time limits;

c. Monitoring aggregates and claim positions; and

d. Managing of premium cash ows between corporate, captive,

commercial insurers, reinsurers and business units.


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And nally, some captives are tasked with helping to manage risk withinthe parent; for these captives, having visibility of the parent’s risk prole is

paramount.

5. Meeting strategic goals and parent expectations

Businesses today demand efciency and cost-effectiveness as a

matter of course. It’s important for a captive to be well positioned to

demonstrate its value to the parent company through, for example,

effective cash-ow management, alignment of corporate and business

unit risk appetite, and bringing in additional programs for coverage.

Captives have never had a more acute need for accurate, comprehensive

data. Today’s captive must be very exible in its use of data not only to

respond to reporting requests from its parent company, regulators and

other stakeholders, but also to satisfy growing operational demands.

The rest of this eBook will explore how captive managers can harness

the power of data; even as the volume and types of data grow rapidly,

processes and tools are available that deliver real value to captives.

Today’s captive

must be very

flexible in its

use of data.


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When one stops to consider the range of operational activities for which today’s captive is responsible, it’s no wonder that captives face many

of the same challenges as a commercial insurance company. Now more than ever, captive managers need control, auditability, efciency, andtransparency over the entirety of their operations.

Many captive managers handle their risk management needs with a

variety of ad-hoc (typically spreadsheet-based) and localized systems. As

captives grow in complexity and responsibility, however, informal systems

and processes are often not adequate. For many captives, the solution is

a risk management information system (RMIS) that automates a broad

range of operations, from underwriting to claims management to nance

and corporate and regulatory reporting. These systems usually integrate

with their nancial plus appropriate internal and external systems.

Every captive will have different needs, which is why it’s so important

that the process of selecting and implementing a technology solution

should be a consultative one, based on extensive discussion and exchange

of information. The system design will vary based on a wide range of

factors unique to each captive, including the type of captive, the program

structures in place, the countries in which the captive operates and the

parent organization’s expectations for the captive.

The captive’s ow of information, which is unique to each captive,

is another important factor in designing a technology solution. Any

technology system should be capable of integrating with external systems

(including those of carriers and TPAs) and internal systems (such as the

captive’s accounting system). Moreover, a system should be exible and

adaptable so it can accommodate future changes to information ows;

a exible system is also more likely to be cost-effective and able to be

implemented in a reasonable amount of time.

TYPICAL OPERATIONS SUPPORTED BY RMIS AUTOMATION

CHAPTER 2: LOOKING AT SOLUTIONS

Underwriting

» Pricing

» Premium Allocation

» Insurance contracts(incoming)

» Insurance contracts(outgoing–reinsurance)

» Certicateissuance/ tracking

» Premium invoicing

» Premium paidtracking

» Premium written/earned position

Claims

» Claims dataconsolidation

» Claimsmanagementprocess

» Payment/

Outstandingauthorization/cashcall process

» Co-Insurerrecoveries

» Reinsurancerecoveries

Finance

» Transactionprocessing

» Managementreporting

» Sums paid andreceived tracking

» Interfaces withnance systems

» Underlying data foractuarial use

Corporate

» Regulatory lings

» Risk Management


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These are the most commonly identied areas in which a technology solution can help a captive. Captive managers should consider the following checklist when

evaluating a technology system, while also bearing in mind that the captive’s needs are likely to change and evolve over time.

£ Manage complex insurance program structures, including fronting

and reinsurance arrangements.

£ Handle complex allocation of claims nancials per participant (re)

insurer considering limits, aggregates, stop-loss and reinsurance-/

retrocession arrangements.

£ Manage legal compliance with Solvency II or its equivalent

(specically, supporting the reporting requirements based on

legislation and standard audit requirements).

£ Provide auditable nancial transactions to cover all premium and

claims-related activities and movements.

£ Manage loss exposures, including an understanding aggregate and

re-insurance positions.

£ Manage the ow of premiums and cash among corporate, captive,

commercial insurers, reinsurers and business units, along with the

ability to see gross and net positions.

£ Provide an auditable and transparent view of ground-up claim costs

from the gross and net perspective for:

£ Local, corporate and captive (whether direct or reinsurance),

£ External market insurers (fronting and coinsurers), and

£ Re-insurers, including retrocessionaires.

£ Allocate and calculate premiums for global programs to business

units or at a more granular level, including tax and fees calculations.

£ Track captive incoming and outgoing premiums and commissions.

£ Calculate and track proportional and non-proportional premiums per

participant (re)insurer.

£ Calculate premiums written to premiums earned.

A CHECKLIST OF TECHNOLOGY CAPABILITIES


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CHAPTER 3: UNDERSTANDING THE BENEFITS

So far we have covered the captive’s need for accurate, comprehensive data and how technology can help captives meet that need. Managing ever-

expanding volumes of data—whether related to risks, policies or claims—is a clear driver to adopting technology. Now we’ll turn to the value youshould expect to realize through an effective technology solution.

When considering an investment in technology, it is important to prepare

a robust business case and identify the benets that will arise from the

investment. The key benets captive managers should expect from a

technology solution include:

MEETING REGULATORY REQUIREMENTS

In our experience, being able to meet expanding regulatory reporting

requirements is the primary reason captive managers today invest in

risk management information systems. A key benet of having a RMIS is

that it provides captive managers with reliable, auditable data that can be

easily analyzed and reported upon.

MEETING THE PARENT COMPANY’S REPORTING NEEDS

Meeting the parent company’s own reporting requirements is another key

benet of improving a captive’s data management. A captive forms part of

its parent’s balance sheet, and corporate boards want accurate reporting

on the captive’s potential impact on the enterprise’s nances.

IMPROVING RISK MANAGEMENT

The rise of corporate governance around risk management has led to

more parent-initiated auditing; as a result, captives must respond to a

mandate for more formal data management and enhanced reporting.

Accurate tracking and reporting on the evolvement of identied risks is

key for both the management and reporting of risks.

TIMELY NOTIFICATION OF REINSURANCE CLAIMS

Managing program complexity and reinsurance or retrocession

arrangements are key benets of risk technology. Allocation of claim

nancials and premiums handling is another important benet. And

because reinsurers have strict claim-submission deadlines, managing

the notication and recovery of claims from commercial reinsurers is

especially critical.


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IMPROVING DECISION MAKING

The enhanced reporting that results from improved data management

yields actionable insights. This leads to better and more informed

decision making with benets covering:

• Improved notication of claims to reinsurers and coinsurers,

• Cash-ow improvement through better tracking of premium

collections and reinsurer recoveries, and

• Evaluation of program design, diversication and loss control.

IMPROVING BUSINESS PROCESSES

Raising the level of automation is another benet of an effective technology

platform. First and foremost, risk technology should automatically

consolidate a captive’s data, and it should automate report generation as

well. These automations lead to a lean captive administration and satisfy

the respective stakeholders with timely reporting while also allowing for

improvements in business processes and efciency.

In general, a technology solution should help the captive managermaintain and improve focus on the task at hand, which span the range

of operational activities. At the highest level, technology should help the

captive better demonstrate its overall value to the parent organization,

including the value of the captive serving as the bridge between corporate

risk appetite and business unit risk appetite.

Drive the value

and efficiency

of the captive

through effective

data management


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CHAPTER 4: WHO BENEFITS MOST?

A key premise of this eBook is that, given the current and emerging requirements for regulatory and governance reporting, every captive has a

need for structured, auditable and reliable data. Captives already have nancial/accounting systems in place, whether insourced or outsourced.

For some, this is sufcient to manage their technical underwriting entries in an ad-hoc manner, so increased technology usage needs to be

evaluated on an individual basis.

This chapter considers the characteristics and types of captives that

would most benet from deploying technology for the purpose of

improving data management.

A good place to start is by matching your captive’s characteristics to the

list that follows. In our experience, we’ve found that captives who exhibit

most or all of the following traits are good candidates to assess whetheror not they will benet from the increased use of technology.

AFFECTED BY GROWING VOLUMES OF DATA

For many captives, managing higher volumes of data, whether related to

risk, policies, or claims, is a key driver to adopting technology. In some

cases it makes sense to consider technology where there are groups of

captives, whether part of a risk retention group, a group of cell captives

or indeed captives under a single manager. That said, most cell captives

are structured in a simple way and controlled by their parent, so theynormally require no specialized technology.

PROGRAM COMPLEXITY

Program complexity with multiple participant insurers and reinsurance

or retrocession arrangements is often another key driver to adopting

specialized technology; this is especially applicable in managing the

allocation of claim nancials through the program to each party, plus

handling the incoming and outgoing premiums as well. And last but not

least, today more than ever it is important to have a rm grasp on the

notication and recovery of claims from commercial reinsurers.

WORKING LAYERS IN PLAY

Especially on the claims side, a factor in using technology is whether

the captive is involved in working layers with high-frequency claims. If,

however, the captive is only involved in catastrophe layers that will rarely

be touched, there is little value in handling this via a formal technology

solution.


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Pursuant to legislation in the United States and in other countries as

well, many parent companies establish captives (typically very small

ones) primarily for the purpose of tax optimization. For most of these,

the existing nancial and accounting systems used by the parent or

outsourced captive manager are more than sufcient, and no further

technology investment is needed.

Yet a growing number of captives are expected to serve a more

comprehensive set of roles. When it comes to achieving optimal

management of the captive’s underwriting and claims data, technology

has a key part to play and is aligned with the top reasons for parent

companies having captives: strategic risk management; cost efciencies;

reduction in insurance premiums; and control over insurance programs

(per the 2015 Aon Global Risk Management Survey cited in chapter one).



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CHAPTER 5: CASE STUDIES

Numerous captives rely on Ventiv’s RiskConsole risk management information system to manage rapidly expanding reporting burdens and

underwriting requirements impacted by claims, policies and their associated nancial movements. In some cases, both the captive and the

corporate parent use a combined RiskConsole solution which was recognized with a 2015 Innovation Award from Business Insurance magazine.

Converging into one solution or the same technology platform can deliver

signicant benets to both the captive and its parent. Of course, the

precise approach needs to reect the particular needs of the parent and

captive; for example catering for their respective approach to arms-length

requirements or independence from writing third-party business.

Following are three brief case studies illustrating how technology can

deliver real value to captives and their corporate parents.



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GLOBAL CHEMICAL PRODUCER

A leading global chemical producer, with signicant U.S. operations,maintains captive insurance companies for insurable risk transfer and to

support the parent company with global insurance management claims

management and risk-engineering activities.

When the opportunity came up to replace their self-built risk management

information system, which had been used for more than ten years, in

combination with other ad-hoc system such as spreadsheets, the insurance

department saw an opportunity to consolidate into a single system.

Their insurance department also saw an opportunity to use data moreeffectively for their global insurance programs, while also standardizing

and automating processes. The benets realized have so far included:

• Elimination of multiple systems; both ad-hoc and legacy databases

have been moved to a single system.

• Ability to allocate premiums in an auditable manner for tax compliance

and year-on-year transparency for the business units.

• Claims nancials allocation resulting in the production of insurancebordereaux to recover from commercial insurance and reinsurance

market.

• Information and reporting available for preparing Solvency II

submissions.

• Integration of insurance nancial transactions with corporate

accounting systems.

• Overall improvement of business process.The RiskConsole system effectively manages all aspects of their global

insurance programs. It has signicantly improved the insurance team’s

effectiveness, saving 500 hours of aggregation and reporting work per

year plus the need for a dedicated IT resource. It also allowed them to

converge multiple systems into a single, auditable and supported system.


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GLOBAL ENERGY COMPANY

A leading U.S.-based global energy company, a major player in all aspectsof oil and gas as well as geothermal energy, was involved in multiple

joint ventures across the globe with an international team managing

insurance for global programs and ad-hoc projects. The company needed

to report on insurance costs on a total joint-venture level. The company

also needed to report on their corporate net position as well as their

captive net position and the position of any participating players in the

commercial insurance and reinsurance market.

Ventiv’s RiskConsole RMIS has met the company’s needs and deliveredbenets that include:

• Ability to report on premium expenditures between corporate joint

ventures and then through into their captives (gross and net), plus

corporate spend versus commercial market expenditure.

• Replacement of numerous Excel spreadsheets, which neither

supported reporting needs nor contributed to stable business

continuity.


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PROFESSIONAL SERVICE COMPANIES

Professional Service Companies

Two leading U.S. professional service companies are implementing the

Ventiv’s RiskConsole RMIS solution for captives.

In both cases, their existing situation was challenged by a combination of

legacy formal systems, ad-hoc spreadsheets and manual procedures as

part of their operational system for insurance administration.

Ventiv’s RiskConsole RMIS was selected to allow them to have a single

insurance administration system covering:

• Integrated matter reporting and case management from partnerships.

• Managing claim nancial responsibilities between local retentions

(including fronters), captive and reinsurance markets covering reserves,

payments and recoveries arising from a complex program structure.

• Elimination of manual and ad-hoc procedures with an automated,

integrated and systemized business process with associated

efciency gains.

• More exibility in deciding the service providers involved in managing

the insurance administration, allowing for in- or out-sourcing.

• Availability of ISO27001 data certication and hosting of the system plus

their data outside the United States using the Ventiv EU data center.


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The rst ve chapters of this eBook have focused on:

The challenges that may lead a captive manager toconsider a risk management information system;

What such a solution should be able to do;

The value a captive manager should expect from asystem;

What kinds of captives are good candidates for atechnology system; and

Case studies illustrating how a RMIS helps real-world captives.

If your captive decides an investment in technology is appropriate, then

this chapter outlines some of the considerations and next steps.

Before approaching any technology investment, then the following needs

to be established:

• Overall objectives and outcomes expected from the investment in

technology.

• Current position identifying any challenges or issues with the current

systems, procedures and processes.

• Future desired position identifying any new requirements or resolutions

of existing challenges/issues.

• Prioritization of all identied requirements and potentially phasing of

the project.

CHAPTER 6: TECHNOLOGY INVESTMENT APPROACH

1

2

3

4

5

TRANSITION

----------------

CHANGE

FUTURECURRENT

PRIORITIES


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There are some considerations worth highlighting:

1. It is important for all technology investments to not just consider the

technology (systems and analytics) elements but also to factor the

management, or people and process, aspects as well. Understanding

of the captives business processes, people and their knowledge helps

understand initial gaps and getting to the best solution designs and also

the planning for implementing and rolling out the new technology. The

incorporation of change management and associated transformation of

processes helps ensure a successful outcome for the project.

Ventiv has developed the Risk Technology Evolution Model to help

an organization understand their maturity levels in respect to risk

technology and how to evolve from the current position to their desired

future state. Whilst this has been more focused on a parent’s needs,

a Ventiv representative would be happy to discuss how this can be

applied to your situation.

2. When considering what is foreseen to be included into the project,

then it is better to focus rst on the areas that will yield most benet

from the application of technology. For instance, areas with a highervolume and/or frequency of activity make good candidates for applying

technology; complex but less frequent workows, meanwhile, can

remain manual, at least in the initial phases.

3. Based on our experience for some captives there can be synergies

between the captive and parent. If appropriate this can result in

signicant additional cost savings and other process efciencies too.

Ventiv’s technology platform can provide both captive and corporate

solutions, either combined or individual (click here to learn more about

Ventiv’s Combined Corporate & Captive Risk Management Solution,

winner of Business Insurance magazine’s 2015 Innovation Award)

NEXT STEPS

If you would like to know more about how to progress your investment in

technology, then please contact Ventiv and our representative would be

happy to discuss further.


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CONCLUSION

• Many captives have driven the management of their technical underwriting

entries via spreadsheets and other ad-hoc manual solutions.

• With the rise of regulatory and corporate governance requirements and

increased parent reporting, these solutions are providing signicant

challenges to the captives.

• This Captive eBook has explored the benets on improving the managing

of technical underwriting entries through better data management using

technology.

• Through the implementation of technology, the captive can gain signicant

benets, helping satisfy the regulators, auditors and parent company.

• Investing into the right degree of technology at the right time is essential.


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APAC

Justin Gale

GENERAL MANAGER

+61.2.8669.7201

[email protected]

Americas

Wes Foster

VICE PRESIDENT

+1.770.308.5620

[email protected]

EMEA

Steve Cloutman

MANAGING DIRECTOR

+44 20 3817 7373

[email protected]

Contact Ventiv to learn more on how technology can help you.

The Captive Insurance Company Guide

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