Baron sees bright future for Asia-Pacific captives

The newly created Captive Insurance Association Singapore (CIA) has now been officially formed, its membership drive is underway and founding members are already looking at options to create equivalent bodies across Asia to support the growth of the regional captive market.

Franck Baron, founding chairman of the Pan Asia Risk and Insurance Management Association (Parima), told Commercial Risk that he sees no reason why the recent relaxation of some insurance lines after the hard market should lead to less interest in self-retentions and captives across Asia and worldwide because of the still-expanding protection gap in many critical areas.

He pointed out that as risk manager for International SOS, he had recently used his captive to take on the primary layer of the group’s cyber coverage as the market rapidly tightened. With the experience gained through the captive, he sees no reason why he would return to the open insurance market if the softening continues.

“The captive is a long-term risk financing tool that enables the group to achieve greater resilience and buttress itself from the swings of the insurance cycle, as well as manage and transfer risks that the market is unwilling or unable to cover. It is an essential risk financing and management tool that should not be viewed merely as a short-term fix,” pointed out Baron, now president of the International Federation of Risk and Insurance Management Associations (Ifrima).

Baron said that he expects 15 to 20 of the 80 captives based in Singapore to sign up to the new CIA in the next couple of months to take advantage of its educational and networking potential.

The rest of the market will follow as the benefits of the platform become apparent, not least the focal point for communication with the Monetary Authority of Singapore (MAS), a key role for the association.

“The first thing to do is actually get together as captive owners and share best practices and challenges – there is no forum today to talk about experiences on the captive journey in Singapore, and there are important regulatory matters to address such as implementation of IFRS17,” explained Baron.

He also said that the association will exert pressure on the captive management and related services community to up their game in Singapore, as well as the wider Asia region, because it currently does not deliver the sophistication needed.

“There is huge potential for growth in the Singapore and wider Asia-Pacific captive market as proven by the growth here in Singapore of 8% to 10% annually in recent times. The market needs to support this growth with greater commitment. There is not the level of sophisticated services that we need,” said Baron, who recently took the decision to self-manage his captive partly due to the current limitations of service providers.

Baron and his founding colleagues at the CIA – including Steve Tunstall, general secretary of Parima, and Kelvin Wu, treasurer and head of insurance at Weybourne Holdings – are already looking into bringing the association to other parts of Asia.

Labuan and Hong Kong are pushing themselves as captive centres, the latter to an extent as part of a wider drive to provide risk financing and management support for China’s huge Belt and Road initiative.

“We are starting in Singapore and then will look to develop local associations in each domicile in the region. This will be done locally to enable the local body to legally represent the interests of captives in the domicile. This needs to be clear. When we talk to the MAS it is about Singapore. We will do our own analysis of where next,” said Baron.

The growth of the captive market in Asia is inevitable, just as it is in North America and Europe, regardless of insurance market pricing and capacity, because of the underlying rise in exposures worldwide, said Baron.

“Growth is coming from risk and under-insurance and so it is about looking to formalise self-insurance. Look at cyber, at the end of the day there is no way back now that I have my primary layer in the captive. Who knows what will come next. It is also supported by the maturation of the risk management and financing community in the region that is finding the captive as an increasingly useful option, and support for more sophisticated risk management,” he explained.

Employee benefits is an area in which Baron sees huge potential for captive expansion in Asia Pacific and worldwide.

There has been much discussion of this potential in recent times, as corporations seek to upgrade and extend their benefits in the ongoing battle for talent and, at the same time, manage and finance these benefits in a more efficient and cost-effective way.

One obvious step to support this effort is to include insured benefits within the captive and global programmes. The take-up, however, remains very low, with only about 150 captives including employee benefits among the roughly 7,000 worldwide, said Baron.

“There is still a lot to do in the field of employee benefits, and this needs education and greater awareness of the benefits for all. People do get the point but there are still a few significant challenges with people risks. Collaboration between risk management and human resources is not a given. HR may get pooling, but insurance and captives is not their science. Likewise, most risk and insurance managers come from a P&C background and so it’s a leap of faith for them too and a bold decision. The good news, however, is that of those 150 captive owners who have taken the leap, they are all able to testify that the effort was worth it,” he explained.

Spreading the word on the benefits of captives is an ongoing effort. This job has been boosted by the limitations of traditional third-party insurance blatantly exposed during the Covid-19 lockdowns when the business interruption market failed to respond, as well as the sudden loss of adequate affordable cyber and D&O capacity at the height of the hard market.

The escalating impact of climate change will make it more important than ever for corporations to invest in robust loss prevention and risk mitigation measures. And so the longer-term outlook for captives appears bright for the new Singapore association and future efforts elsewhere in the Asia-Pacific region.