Captives can lead the insurance industry in tech innovation

Vermont's plan to experiment with distributed ledger technology in the regulation of its captives industry should be great news for captives – as well as tax collectors, James Swanke, director of risk consulting at Willis Towers Watson, told an audience at the VCIA conference.

Vermont had signalled its intention to look at how DLT could be used to regulate captives back in January. Sandra Bigglestone, director of captive insurance at the State of Vermont department for financial regulation, told the audience Vermont is working on a request for proposals for the development of a distributed ledger technology platform to maintain records for its captive industry.

Swanke said a DLT-based system would deliver greater transparency, which could help tax collectors wring more dollars out of the industry. But it would beneficial for the industry as well, driving down costs for auditors and other service providers, and improving access to data.

“This is another area where captives are leading the way for commercial insurers,” added Swanke.

But Bigglestone stressed the new DLT platform will not transform Vermont's captive regulation overnight. Instead it will provide an opportunity to look at the technology and give regulators a better idea about how they could make their systems more efficient. If it is successful it could ultimately be extended to other aspects of captive regulation, she added.

The DLT system is just one way that Vermont is looking to innovate in the captives sector. In June a regulatory sandbox was launched, allowing the regulator to grant waivers to insurers looking to find better ways of delivering their services.

Swanke said the captives industry had an opportunity to lead a wave of innovation in the insurance industry because they are more nimble than larger commercial insurance companies. Technological advancements in the captives industry will be “more innovative than disruptive,” he said.