Parima plans to educate membership on benefits of captives

The captive market is currently limited in Asia-Pacific, despite the best efforts of domiciles and international insurance centres such as Hong Kong and Singapore to promote the concept. The prospects for the captive market in the region were a hot topic of discussion at Parima’s annual conference in Singapore in November. Experts agreed that the potential is great but also agreed that attention must shift from cost savings to a more strategic risk and insurance management approach for the captive concept to realise its potential in Asia-Pacific.hideMr Wu, risk manager for International SOS in Singapore, attended the recent captive summit in Macau, which he said was attended by a mix of existing captive owners and risk managers who are interested in creating captives. The risk manager said that for existing captive owners, the main themes discussed during the event largely revolved around new ways for existing captive owners to further leverage their captives. He reported that, in particular, there was strong interest shown by existing captive owners to better understand how to incorporate employee benefits in a captive. US and European risk managers have only just recently woken up to the potential offered by their captives for employee benefits risks but interest is rising fast, according to captive experts. It is even rarer for Asia-Pacific risk managers to include employee benefits risks in their captives. But Mr Wu said this is definitely a topic of interest for Parima members. “International SOS was the first company in Asia to set up employee benefits in its captive and, as such, the audience was very keen to understand more about this topic,” he told Commercial Risk Asia. Mr Wu said, however, that for the vast majority of Asia-Pacific risk managers the idea of using a captive is a new one that needs to be investigated and he added that Parima is there to help. “Education here is key. Education not only in the technical aspects of a captive but also with regards to the more intangible aspects such as how to use the captive to have a more strategic conversation with your senior management; and how to engage your senior management via the creation and selection of the captive board of directors,” explained Mr Wu. “Through such events and sessions, Parima also hopes to promote greater exchange of ideas and sharing of best practice among risk managers and their peers and, also with the market, that would provide the technical expertise and implementation support,” he added. “Parima exists to provide our community of risk managers with greater knowledge and tools to do their jobs better; having a greater understanding of captives will help to add another tool to the risk manager’s kit,” continued Mr Wu. The Parima committee member said changes in the regulatory environment and development of the domiciles in the region will likely be demand-driven. “As more risk managers and comp-anies have a better understanding and greater interest in setting up captives, domiciles in the region will have to step up their game to meet these needs, or risk these companies going elsewhere to set up their captives,” said Mr Wu. The same demand will also push insurers and brokers to better position themselves as strategic risk financing advisers to companies and risk managers and to shift away from being less transactional, he added. Asked why captives are currently so rare in Asia-Pacific, Mr Wu said he sees three main reasons that would drive risk managers to set up captives. These are typically cost savings, greater control of the insurance programme, and the ability to cover more difficult-to-insure risks. The ongoing and prolonged soft commercial insurance market in Asia-Pacific and globally is not helping, said Mr Wu. “Commoditisation of insurance purchasing and the relatively cheap pricing has negated the potential financial advantages of having a captive. There are no real cost savings to be realised when the direct market coverage offered is very competitively priced,” he explained. The relative immaturity of corporate risk and insurance management in the region is another barrier, said Mr Wu. “In general, the maturity of the risk management function in Asia is still lower compared to our Australian counterparts. Couple that with the greater reliance on brokers with regards to the placement and management of insurances, and there is less desire for risk managers here to take greater ownership and control of their insurance programme via the captive,” he said. “Thus, with the market not yet mature enough to frequently use captives for the more traditional property and casualty/liability programs, the potential to use it in more creative ways, such as to insure some difficult-to-insure risks, will be even less frequent,” added Mr Wu. The strong level of influence and control enjoyed by commission-based brokers when it comes to insurance placements is another impediment to captive growth in the region, said the Parima committee member. But the potential to use captives to raise the profile of professional risk and insurance management within the region is big, said Mr Wu. “Risk managers are not yet fully equipped, [nor do they] have the desire to take greater ownership and control of their risk-financing strategy and use the captive as a means to have a strategic discussion with the CFOs and CEOs of their companies, when it comes to risk retention and risk financing,” he explained. “One of the key advantages of using the captive is the ability to transform the risk-financing conversation from being a cost-driven, insurance procurement-based one, to a conversation revolving around profit and loss and risk retention strategy via the captive,” added Mr Wu. But, to achieve this, the risk manager will have to be prepared to have that level of c-suite discussions and the visibility and responsibility that comes with it, he said.

Parima plans to educate membership on benefits of captives

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