The power of a live captive view

Jonathan York (pictured), CTO of Luzern Risk, on how having up-to-date captive information at the click of a button drives better decision making.

The decision to participate in captive insurance is often guided by a desire for greater control. The goal is to move beyond the rigid nature of commercial insurance and build a financial asset tailored to your needs. But in reality, that control can remain elusive without the right technological foundation.

The primary element that unlocks better decision-making is a continuous, up-to-date picture of your captive. Without it, you’re stuck with regular but infrequent reporting of information that is already out of date by the time it gets to you, or the prospect of asking for off-cycle updates that take significant manual work.

Let’s consider why an up-to-date view is essential, the challenges in producing one, and what the capability enables once you have it in place. This is only the beginning of what’s possible by taking a systematic, tech-enabled approach to managing your captive.

The Captive Advantage Relies on Clarity of Information

A captive isn’t an insurance product; it’s an insurance company. One that you own. As a result, there is much greater upside to managing your insured risks well. Better loss performance leads to stronger financial results in your captive and an asset that compounds. There’s a direct incentive to dig into claims and focus on loss control and risk mitigation techniques. Furthermore, you can fine-tune your policies and secure coverage that may not be available in the market.

But this advantage depends on having timely, accurate information about what’s happening in your captive. Without clarity, you can’t be confident that you’re making the right decisions. A spike in losses from January might not be fully analyzed until the board meeting in May. The opportunity for quick intervention is lost.

For claims with consistent frequency and volatility, like in workers’ comp, the challenge is to synthesize across the flow of claims, and assess the impact on your captive’s financials. For lower frequency claims of high severity, like in real estate, it’s to explore different scenarios with precision.

Blockers in the Established Model 

If having a live view is not only beneficial but required for delivering on the premise of a captive, why isn’t it the industry standard? The answer lies in the operational reality for most captive managers. Providing this kind of view takes the right data, analytics, and technology.

In the established model, the service agreement is built around periodic reporting, like quarterly summaries and annual financials. To produce these reports, analysts spend hours manually gathering data from different sources, updating spreadsheets, and compiling the information. It’s an arduous process that gets repeated again and again.

Now, imagine this common occurrence: you have an ad hoc request mid-quarter. “What’s our updated loss position, and how does it affect our surplus?” This request leads to off-cycle manual work, meaning you wait for answers that may be time-sensitive. It’s inefficient and increases the risk of error.

In short, this outdated model isn’t designed for on-demand answers.

A Live View

The alternative is to build a new service model on a technological foundation designed for a continuous flow of information. This approach generates an up-to-date view of your captive’s health and improves the quality of the signal you get, which is a natural consequence of strictly defining the data that is needed and how it all fits together. An up-to-date view that is always available to you is impossible to achieve through manual effort.

Instead of one-off projects, we build a central, dynamic model for each captive. We create direct data feeds from the key sources, including the captive’s bank accounts, TPA’s claims information, and investment manager’s portfolio performance. Whenever new information becomes available from a source, it flows in automatically, updating the captive’s complete financial picture.

Beyond being a faster way of producing the necessary result, this represents a fundamental change in the commitment to the client. The promise used to be: “We will send you a report once a quarter, and let us know if you need anything.” Now it becomes: “You will have access to a complete, accurate picture of your captive whenever you want it.”

Creating Space for Strategy

The initial reaction to this new model is relief. Having everything in one place and seamlessly updated eliminates surprises and gives you security. Ad-hoc requests become simple conversations, not week-long projects. You have the clarity you need to make decisions on both the strategic and tactical levels.

But the most important benefits come over time. With reliable, up-to-date information, you are freed up to think differently about your captive. Instead of focusing on what happened last quarter, you can use the current picture to think about what’s next.

This capability lets you much more easily:

• Stress-test your captive: Model the impact of various loss scenarios on your surplus to ensure you are adequately capitalized for unexpected events, freeing up excess capital for other business needs, or even a dividend to shareholders.
• Optimize your structure and policies: Analyze different retention levels or coverage structures and see their impact on your financials, giving you confidence in how your captive is set up and confirm that you have the best and most cost-efficient reinsurance. 
• Grow and diversify: Use the captive to test new risk management initiatives like writing third-party lines or parametric coverage, with immediate feedback on performance.

Technology transforms your captive from a black box to a powerful and transparent risk management tool. By providing a continuous, live view, we deliver on the full potential of a captive: control, informed by an accurate understanding.

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