Observations from a new perspective: The transition from chief regulator to consultant
As I reflect on the past six months since leaving for the private sector, I find myself in a unique position, having transitioned from the role of chief regulator of captives in a domicile to that of a captive consultant. This shift has provided me with another lens through which I can view the captive insurance industry, offering insights that bridge the gap between regulatory oversight and practical programme structuring and implementation.
When I first embarked on this journey, my expectations centred around making initial contributions, adding value to my team and offering another viewpoint on the industry and captive programmes. I aimed to complement the existing strengths of the team here by bringing my regulatory experience to bear on our consultative approach. What I've discovered in this transition has been both affirming and surprising.
One of the most unexpected revelations has been the striking similarity between the internal functioning of large insurers and that of departments of insurance or other large bureaucratic entities. This parallel brings both advantages and challenges, highlighting the universal complexities of navigating large organisational structures. It's a reminder that, regardless of sector, effective communication and streamlined processes are crucial for success.
The transition has also reinforced the paramount importance of trust and communication in this industry. Whether operating in a regulatory or consultative capacity, the ability to build and maintain strong relationships based on open dialogue and mutual understanding remains fundamental to success in the captive space. This realisation has only deepened my appreciation for the interpersonal aspects of our work.
My new role has given me insight into the myriad variables that influence insurer appetite at any given time. This complex interplay of factors underscores the dynamic nature of the insurance market and the need for adaptability in crafting effective captive solutions. It's a stark contrast to the more static regulatory environment.
2. A new perspective on the captive industry as a whole
My move from regulator to consultant has offered a unique "data point" on the captive industry as a whole. This dual perspective encompasses both the intricate details of assembling captive programmes and finding risk appetite in the market, as well as a broader view of domicile dynamics and the factors that contribute to their success or failure.
On one hand, I've gained detailed knowledge of the components of putting captive programmes together. This includes my new exposure to watching operations get “peeled apart” as I underwrite risks within our authority, but also the complicated process of finding appetite for risk in the market and facilitating the structures and mechanisms through which the transaction to exchange dollars for risk takes place. It's one thing to understand the theoretical framework of these transactions as a regulator, but quite another to be directly involved in their creation and implementation. This experience has given me a newfound appreciation for the complexities involved in tailoring captive solutions to meet the specific needs of individual clients. It has further deepened my understanding of the practical challenges faced by captive managers and insureds, providing insights that were not as apparent from a purely regulatory standpoint.
On the other hand, my background as a regulator, combined with my new role, allows me to assess domiciles with a critical eye. I can now more clearly discern what makes for great domiciles, merely adequate ones, and those that present significant challenges. This insight is crucial for understanding the key factors that contribute to a domicile's success or failure, and how these factors impact the broader captive industry.
One critical issue that has become increasingly apparent is the impact of regulatory turnover in domiciles without a solid bench of experienced professionals. This churn can have far-reaching consequences, not only for captives domiciled in or seeking licensure in these jurisdictions, but potentially for the entire captive space. Inexperienced regulators may inadvertently open the door to service providers unfamiliar with best practices or, worse, with nefarious intent. This can lead to a range of problems, from inefficient operations to potential reputational damage for the domicile and broader captive industry.
As the captive industry continues to expand, several key considerations come to the forefront. With the increasing prevalence of captives, it's crucial to remain vigilant against the influx of unqualified or unethical service providers. The industry must work collectively to ensure new entrants are qualified and aligned with best practices.
This growth also raises questions about the potential for licensing or credentialing for captive managers. While I've historically been hesitant to support such efforts, the rapid expansion of the industry and the influx of new service providers make this an idea worth reconsidering and could help address concerns about unqualified individuals leading unknowing clients into uncertain territory.
3. Thoughts on captive domiciles
My transition has also provided me with a unique vantage point from which to evaluate captive domiciles. This angle has allowed me to identify key characteristics that distinguish great domiciles from those that are merely adequate or struggling.
Great domiciles benefit from strong Department of Insurance support in attracting and maintaining talented captive regulators. They provide their captive regulators and divisions with a high degree of autonomy and the requisite authority to make decisions. This empowerment, coupled with intimate familiarity with the captive industry, enables effective regulation and fosters growth.
Truly successful domiciles also prioritise versatile staffing, building up and training multiple people to wear several hats at any given time. This approach enhances regulatory flexibility and effectiveness. Moreover, they create attractive work environments by offering competitive salaries, opportunities for professional growth and fostering an enjoyable atmosphere with trusted colleagues. These factors are key to retaining top talent and maintaining consistency in regulatory approach.
A sound regulatory philosophy is another hallmark of great domiciles. This involves a level-headed, reasonable and well-thought-out approach based on creativity, consistency, open dialogue and responsiveness. Such a philosophy will most certainly be underpinned by an advanced understanding of where the real risks lie for both solvency and reputation.
Adequate domiciles are often aware of these best practices but may struggle fully to implement them due to various constraints. They frequently find themselves "fighting the good fight," working to educate their respective directors/commissioners, legislators and/or other government authorities while striving to attract and develop regulators focused specifically on captives.
Domiciles facing significant challenges may be unaware of these best practices, antagonistic toward captives or mistakenly believe they can regulate captives using a more traditional insurance regulatory approach. These misalignments can lead to suboptimal outcomes for both the domicile and the captives under their purview.
The best regulatory philosophy must strike a delicate balance – neither too stringent nor too lenient. Overly strict regulation can stifle innovation and growth, while excessively lax oversight can lead to abuses and instability. Finding the "just right" approach requires experience, judgment and a deep understanding of the captive space.
As we look to what’s on the horizon, maintaining the harmony between growth and integrity will be key. This may involve developing new regulatory frameworks, enhancing industry self-regulation or exploring novel approaches to ensure the continued success of the captive industry.
In conclusion, the move from regulator to consultant has provided yet another view of the captive insurance industry. It has highlighted the critical interplay between regulation and practice, the importance of experienced and balanced oversight and the need for ongoing adaptation as the industry evolves. As we navigate the future of captive insurance, I believe these insights will positively impact strategies that promote captive solutions in an ever-changing risk landscape.
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