12 June 2019Accounting & tax analysis

Companies use analytics to dodge hardening rates by leveraging captives

A hardening market has prompted many companies to explore ways of leveraging their captive to help dodge or at least offset some of the rate increases, according to Jason Flaxbeard, executive managing director, captive management and consulting, Beecher Carlson.

Flaxbeard was speaking to Captive International at the annual Bermuda Captive Conference taking place this week. He said that, helped by advisers, companies are leveraging analytics to get a more holistic sense of their overall risk exposure, to establish how they can better use their captive to manage that risk.

“People have been used to 15 years of a soft market; now, we are seeing rate increases across many lines of business including property, D&O and workers’ compensation,” he said. “People are wondering how to deal with that and one natural conclusion is to self-insure more, to use their captive.

Flaxbeard added: “Analytics is being used to establish what the optimal risk structure is for companies – it is s a different way of cutting the cloth. If companies are buying monoline insurance coverage, a different policy for different risks, they forget that these risks are usually not correlated. So, you might be able to use a captive to cover this in a different way and offset rate increases on those specific lines.”

Although the use of analytics is nothing new, it has had a new lease of life in the past three or four years, he said, while hardening rates have led to a spike in inquiries about its potential. It combines a number of forms of analysis, including actuarial, catastrophe risk models and stochastic models to generate an integrated overall risk profile for firms.

Flaxbeard said that this process can give risk managers to the tools to work with CFOs to establish a new structure for transferring risk in a more efficient manner. “It can be a way to insulate yourself against a hard market,” he said.