Marsh warns that governance factors hindering captive growth in South Africa
Additional board oversight, capital demands and specialist skills requirements are becoming a significant barrier to captive growth in South Africa, according to Marsh.
But captives should be viewed as strategic risk management vehicles, not cost centres, a senior Marsh executive told Intelligent Insurer at the Africa Captive Conference.
“Large corporates have got multiple boards already. The increasing governance complexity of owning a captive is one of the barriers to setting it up because having a board for a captive already means you’ve got more meetings, you’ve got more oversight, you’ve got yet another organisation or entity that requires fiduciary responses and responsibilities,” Xolisa Bangeni (pictured), captive manager and captive analytics lead at Marsh said.
Capital allocation is another obstacle, she said, as funding a captive competes with other corporate priorities, including working capital and growth initiatives.
However, Bangeni argued that the business case changes when captives are positioned as a way to manage risk intelligently, rather than another expense.
“A captive would be a problem if a captive is positioned as a cost centre. Instead of it being positioned as a cost centre, it needs to be seen as a clever way to manage risk, that there’s an upside to risk management, and it could eventually have an upside potential for shareholder value creation,” she said.
A shortage of specialist skills is another hurdle. While corporate risk departments may be experienced in negotiating insurance terms, managing claims and broker relationships, Bangeni said they may lack the actuarial, capital quantification and governance expertise needed to operate an insurance company.
That can mean bringing in external expertise or creating capabilities outside the organisation’s conventional structure.
There is also a psychological barrier, she said, with some organisations reluctant to change established insurance arrangements simply because they have worked in the past.
“The conversation should shift to we are dictating terms because of what we know about our risk management, what we know about our exposures,” Bangeni said of her expectation that corporates will become more intentional about risk management and take greater control of their insurance programmes, rather than allowing the market to dictate terms, pricing and exclusions in the near future.
Among the biggest untapped opportunities for captives are risks that traditional insurers have either abandoned or do not fully understand, including supply chain disruption and climate risk adaptation.
Bangeni said conventional supply chain policies may focus on business interruption but fail to capture the additional operational costs associated with disruption.
“Climate risk adaptation is a long-term process. It’s a long-term problem. It is maybe a 10 to 20-year problem,” she added.
She also pointed to changing weather patterns, noting that hailstorms, previously considered catastrophe events, are becoming increasingly frequent.
Four months into her role at Marsh, where she is responsible for captive management and analytics, Bangeni said success would mean expanding conversations around holistic risk management and influencing how businesses approach their exposures.
Her ambition also extends to growing South Africa’s captive market and encouraging more businesses to establish domestic structures.
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