Risk-sharing seen as route to insuring emerging exposures
Group captives and mutual insurance structures could help businesses tackle emerging and hard-to-insure risks by pooling exposures, sharing data and developing the underwriting knowledge needed to make them insurable, according to Oliver Schofield (pictured), chief executive of RISCS CWC.
Speaking at the Africa Captive Conference in Johannesburg on Thursday (November 12), Schofield called for greater collaboration between organisations facing similar insurance challenges, arguing that collective approaches could provide the capacity and data needed to develop solutions that individual businesses might struggle to achieve alone.
“There are a number of organisations around the world who are all in the same boat,” Schofield said. “There should be pan-industry and/or pan-regional collaboration to build sufficient capacity and data sets to get the solutions delivered.”
Group captives and mutuals offer a way to address this, allowing businesses to combine their data and experience to better understand exposures of emerging risks.
Schofield pointed to South Africa as an established example of the model, saying group captives and mutuals already operate in the market and should be used more extensively to address hard-to-insure risks.
He also highlighted a two-year-old cyber mutual spanning diverse industries, alongside organisations forming cross-regional risk-sharing arrangements within the same sectors.
This approach can also improv access to reinsurance. By retaining a substantial portion of the risk, members demonstrate their own financial commitment, potentially making it easier to secure catastrophic reinsurance capacity.
Schofield also described captives as potential incubators for emerging risks. By taking on carefully assessed exposures and gathering data on their performance, captives can help generate the information underwriters need to develop products and price risks.
Examples of emerging exposures include the long-term performance of low-carbon concrete, the disposal of electric vehicle batteries and risks associated with artificial intelligence. A lack of historical data and uncertainty about long-term outcomes can make these risks difficult for conventional insurers to assess and cover.
As the market builds its understanding of these exposures, risks that are difficult to insure today could become conventional insurable products. As Schofield put it, “there is always a solution”.
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