A captive can be a powerful risk management tool, but it can become blunt and ineffective over time if it is not continually assessed and appraised, to ensure it remains efficiently structured and aligned with its owner’s objectives, says Ciarán Healy at Aon.
TCOR is the industry standard model for tracking insurable costs, used by institutions across all industries to benchmark themselves against peers and historical trends, and by captives to determine reasonable insurability. It is a frustratingly limited measure of risk, so Randall Davis at Delphi Risk Management developed new models to do the job better, as he told Captive International.
Insurance tends to be viewed as a contract, but in reality the choice between one insurance policy and another is more like the one a shopper makes when considering which of two widgets to buy, and that could have profound implications for legal disputes, says Matthew Queen of Venture Captive Management.
Captives allow owners to put their premiums to work and control and mitigate risk, while taking advantage of certain tax protections that are available, but bringing these benefits to reality is a team effort. The best captives are supported by teams with a unified mission and purpose, rather than teams that are purely transactional, says Geoff Still at TABS Insurance.
A series of high-profile victories in court for the IRS over 831(b) captives has tarnished the reputation of these structures, but they do not deserve their shady reputation, as Jeremy Colombik of Management Services International told Captive International.
There have been a number of high profile fights between states and captives in recent years, including Johnson & Johnson v New Jersey, Stewart’s Shops v New York and Microsoft v Washington. If these cases haven’t grabbed your attention you need to wake up, says Gary Osborne, vice president at Risk Partners.
RRGs are regulated by the state in which they domicile, and are free to do business in other states, but many non-domiciliary states are operating well outside the scope of the law, says Jon Harkavy of Risk Services.
Many regulators are still deeply sceptical about the growth of cryptocurrencies, and the impact they might have on markets, but they are potentially transformative in the insurance industry. They could spawn a whole new generation of investable insurance products, says Matthew Queen of Venture Captive.
A captive can bring a number of efficiencies to a global benefits programme in addition to the traditional advantages of reduction in external costs and retention of underwriting profits, as Alexandra Gedge at Marsh explains.
Captives are still domiciled in physical jurisdictions and regulated by real people, but for how much longer? In the future, regulation could be provided by sophisticated and fully autonomous websites, reducing costs and increasing efficiency, says Matthew Queen of Venture Captive Management.