A force that can 1) throw into confusion or disorder; 2) interrupt or impede the progress of; 3) break apart or alter so as to prevent normal or expected functioning.
Disruptors are in vogue these days, especially when it comes to technology (think Amazon v. bricks-and-mortar). Captives were a disruptor to the traditional insurance industry when they broke onto the scene over 50 years ago, and even today, because of the flexibility and innovative nature of captives, they still are a disruptive force. But we are also seeing disruptors emerge in the traditional insurance industry in the past few years which I think may have an effect on the captive industry.
A recent KPMG survey reported that while insurance executives overwhelmingly know that innovation will drive future competitive advantage and growth, most seem to be struggling to ignite innovation within their own organizations. According to the report, “rapid innovation has created significant challenges for insurers, with 48 percent saying that their organizations are already experiencing disruption from new, more nimble competitors”. More than three-quarters said they are “already running just to keep up with their day-to-day requirements” and slightly fewer said they “lack the internal core skills needed to drive innovation”. But change is coming.
One interesting disruptor is the use of algorithms to aggregate small insurance policies in a way that prices some of the traditional companies out of the market, especially smaller enterprises looking for easy, quick and cheap. This commoditization pushes traditional insurance companies and agents to put more focus on larger business and specialized accounts – areas that should be ripe for the captive industry. Combine this with the growing use of technology and social media, such as Google Compare, and it can look daunting. But that’s what makes captives more alluring that ever. While businesses will still have concerns about coverage gaps in these types of programs, not to mention the fact that the specific needs of individual enterprises may not be available, the lack of personal accountability with these products would make any captive manager or TPA look like a hero!
This is where captives could excel. For instance, sponsored cell captive insurance companies provide the sponsor of the captive program a great deal of flexibility by allowing for individual cells that can be customized to each participant. This type of structure is growing in popularity because of the options and customization it provides. It can also be a good way for smaller companies to access the captive insurance marketplace, because typically the startup cost is less than establishing their own captive.
So keep the disruption coming! What doesn’t kill you makes you stronger…
Thank you all very much, and I look forward to hearing from you.