It’s Hot!

Captivated – July 9, 2021

The record-breaking heat in western North America is just another example of the climate change challenge we all face in the years to come. The insurance industry, not surprisingly, will play a lead role in helping their clients –  and society overall – manage this risk in innovative ways.

One such innovation that is beginning to take off in the captive insurance arena is the use of parametric insurance. Parametric insurance is a non-traditional insurance product that offers pre-specified payouts based upon a trigger event. Trigger events depend on the nature of the parametric policy, which can include weather-related events as well as earthquakes, travel cancellations, and much more.

I know parametric solutions are getting more traction in the captive space because we have not one, but four organizations that are providing Ignite Talks at VCIA’s 2021 Annual Conference on the topic. Ignite Talks are short, TED-Talk style presentations on solutions to challenges facing captive insurers.

Not in any order, we have Aon presenting Parametric Insurance – An Alternative Solution, which will explain how captives supporting Parametric Insurance placements are helping organizations address a hardening market for Natural Catastrophe coverage, contingent and non-damage business interruption risks and other ‘difficult to insure’ areas.

Another session by AXA XL is entitled Parametric Solutions for Captive Owners where you can learn more about how parametric programs enhance risk management for captive owners, and the practical solutions offered through effective captive utilization.

X350 – Magnify Your Reinsurance Capacity to the World´s Largest Capital Market(s) With One Page presented by RYSKEX will explain how the future of buying reinsurance capacity as part of a blockchain-based Digital Risk Exchange (DREx) ecosystem will allow you to start selling your risks to the capital market with parametric risk trading.

And finally, Arbol presents Streamlined “Captive+Parametric” Solutions for Climate Change Risk Management which will explore how captives can play an active role in corporations’ responses to the climate change risk management mandate using climate data, online tools to structure and price parametric protections, and settle claims automatically via smart contracts.

Quite an incredible line up! The VCIA Annual Conference will be held online August 10 – 12th, which is fast approaching, so check it out here and Register Now!

Thank you and I look forward to seeing you soon.  

Rich Smith
VCIA President

Captive Insurance Petri Dish

Interesting story in February’s issue of Business Insurance on the growth of the InsurTech sector seen through the number of IPOs and M&A activity. Valuable InsurTech companies are being hoovered up by some of the insurance sector giants, while there is also an increasing appetite in growing the InsurTech firms themselves.  The BI article quotes one InsurTech CEO saying the level of investment in the InsurTech sector is “profound,” with private equity firms investing in established InsurTech and venture capital investing in earlier stage startups, he said. “That’s why you’re seeing so much activity in the space — it’s well rounded.”

There many InsurTech solutions being tested and utilized in the captive sector as a spillover from the traditional market, of course, but few that I know of that have decided to stake their future on focusing almost entirely on our industry, which I think is a missed opportunity: captives have always been a great laboratory for innovation and new ideas to bring down costs, create efficiencies, and expand captive utilization.

Two firms focusing on the captive insurance market are AI Insurance and RYSKEX – very different models looking to shake up the industry. Cameron MacArthur is the founder and president of AI Insurance, and he comes right out of central casting: smart, young high-tech developer in Silicon Valley who recognized how artificial intelligence could be utilized to share information from insured and policy management, enabling automated end-to-end claims processing that is highly intelligent and dynamic, focused on delivering the captive’s ROI. He did this by digging down into the nitty-gritty around the processes and challenges captives and RRGs have as smaller (usually) self-insurance operations.

Marcus Schmalbach and his team at RYSKEX have a similar story, although located in Berlin instead of Silicon Valley. RYSKEX has developed a digital platform that allows a global network of leading investors to take on hard to insure emerging and systemic risks. It also enables captives to find the appropriate coverage using our parametric risk transfer solution and hedge their risks as securitized intangible assets, which can be traded transparently and securely using blockchain technology. Pretty cool.

Captives have played a valuable role as a laboratory for both these InsurTech solutions. I would not be surprised to see similar stories about these two firms in the next few years. Watch this space!

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President