Marrying captives with international programmes

International programmes are increasingly popular among firms that want to ensure smooth, efficient, and comprehensive cover across all locations and lines of business. At the same time, many organisations are embracing captives.

This is not surprising, since such alternative risk transfer solutions have myriad benefits including retaining risk, access to capacity, and cover for risks that may otherwise be difficult to insure.

While plenty of organisations will have put in place both an international programme and a captive, the intersection between the two solutions can lead to greater benefits.

When deployed correctly, a captive can enhance the flexibility of an international programme, meaning the two approaches work in concert to help provide better risk management and cover.

Complementary solutions

William Porter, Head International Programs – Americas at Swiss Re Corporate Solutions, said: “It gives companies the ability to bring more of their operations around the world into a controlled programme that the risk manager has oversight of.”

“When you think about local operations, they often aren’t going to want to have the deductibles that the customer would buy at the global level. A captive gives the flexibility to say, ‘OK, we want to buy a $5 million deductible worldwide, but the local operation can get $500,000 or even lower deductible with the captive taking that difference’.”

Another benefit of a captive solution is the ability to provide cover for risks that cannot be insured under a global programme. There are some exposures such as asbestos, adverse weather, and even reputation, where insurance solutions are thin on the ground or don’t exist at all.

Captives are a good tool for tackling more distressed or emerging risks and gaining access to capacity.

Thomas Keist, Global Captive Solutions Leader, explained: “There are some lines of businesses where a captive can start to make risks insurable for the company where the traditional or commercial insurance market cannot yet.”

”Cyber is an obvious area where captives are going to be at the forefront of defining the coverage in an appropriate way, that is more commensurate with the actual risk of the company.”

Porter gives the example of a corporate real estate client that was paying for expensive coverage for leases for third-party sites. By bringing the risk into a captive solution, the firm was able to find an innovative solution that saved money and drew the attention of the CFO.

He explains: “It’s a rare thing for an insurance carrier in property to get an audience with the C-suite. But when you are talking about captives and what they can bring to you, that’s the kind of exposure that you can get. Having the ear of the customer means you can really help them achieve a lot of their goals.”

Keist added: “As soon as there is a captive involved, the visibility of risk management and the insurance buying function increases within the organisation. It becomes something important. And that makes it possible for the captive people to actually influence the way risk is managed within the entire group.”

”Combine this with the oversight and control an international program provides, and you have a strong set of tools to maximise efficiency and effectiveness in the mix of risk management and insurance.”

Time to collaborate

Of course, different clients will have different needs and therefore a close dialogue and collaboration between captive managers, fronting insurers, brokers and risk and insurance managers is needed to find the most creative and innovative solutions.

This is a critical piece of the puzzle when it comes to making sure that captives and international programmes are working harmoniously together.

Porter concluded: “I talk a lot about the tripartite relationship, because you are always going to have the carrier, the broker and the customer. But when the customer has a captive, that adds another element because now you have the captive making the customer a risk-bearing member of the programme team.”

“I think it really helps the risk manager get their message through to the rest of the organisation… and it allows us to have deeper conversations with the customer,” he continued.

”It changes the focus from traditional international programme discussions, which are how fast can you issue, or how broad your coverage is… Instead, you’re focused on making sure the right coverage is in place and really putting the programme together in the best way.”

William Porter is Head, International Programs – Americas and Thomas Keist is Global Captive Solutions Leader at Swiss Re Corporate Solutions.