The year 2020 is set to see a marked increase in captive formations, according to Mike Meehan, a consultant at Milliman.
Speaking to Captive International, Meehan noted there has been an uptick in enquiries about captive formations in the early months of this year compared to last year.
“We typically see the most interest in captive formations during the second half of the year as organisations work to get their captive programs in place for a January 1 start-up date,” he said. “However, we have already seen an increase in activity in the first quarter of the year. I take that to be a sign that 2020 could be a strong year for captive formations.”
Meehan was set to be on the Captive 101 panel at CICA this year. Captive 101 is an introductory session that captive owners often find particularly useful as a way to better understand how to go about setting up a captive. Some companies also use it as an opportunity to give their junior staff an overview of the industry, and some time to network.
Meehan said the increased interest in captives is a direct response to the hardening market. “For the past several years, there has been talk of the prospect of a hardening market,” he said. “We started to see some examples of this over the past couple of years in certain lines of coverage, such as property. More recently, there have been other indicators that the market is hardening, particularly in liability lines of coverage.”
Captives may not be launched with the intention of writing these more expensive business lines at the outset. Usually captives launch writing certain lines, particularly casualty, workers’ compensation and general liability, and only look to add new lines once the captive reaches a certain level of maturity and has built up a certain level of capital.
Meehan admitted captive formations could be knocked off track later in the year, if their efforts to tackle the challenges around COVID-19 become too time consuming to leave them time to address other priorities.
“It is certainly possible that the increase in activity doesn’t continue through the end of the year,” Meehan said. “Organisations could be forced to focus their efforts in other areas. For example, as organisations continue to navigate the impact of the COVID-19 pandemic on their business, other issues such as business continuity and employee wellness could easily become higher priorities that require more attention and resources.”
Meehan also said advances in technology are making captives more efficient, meaning they can deliver better value for money to their parents.
“Utilising technology can play an important role in helping captives manage their claim costs,” he explained. He cited Milliman Datalytics-Defense, a second generation e-billing platform that employs machine learning based algorithms to help companies detect patterns in attorney billing practices, as an example.
Datalytics-Defense’s algorithms allow captives to better understand their costs and develop more effective claims defense strategies, he said. “Advanced analytics helps identify best practices of claims defense which can be implemented across the organisation.”
Milliman, Mike Meehan, Datalytics-Defense