Time for a big effort on captives

The fundamental role of the risk and insurance manager is to help reduce the level of uncertainty faced by their company and colleagues.

The risk and insurance manager’s job is to help their board members and colleagues sleep easier at night and wake up refreshed and ready to focus their efforts on creativity, innovation and growth.

You know for sure that a company is being badly risk managed and the risk manager is not up to the task if the CEO is losing sleep every night because they are fretting about another big lawsuit, supply chain failure or complex insurance claim.

Now we all know that some catastrophes are really unavoidable and cannot be blamed on anyone, least of all the risk manager.

Hurricanes, tsunamis, wildfires and the like are not caused by human intervention or failure (global warming aside), so the risk manager of course cannot be expected to prevent them.

But they can be heavily in involved in and responsible for the prevention and mitigation of the impact of such unpredictable and catastrophic events though physical loss prevention measures, swift and effective crisis management and business continuity plans, and of course, risk transfer tools when feasible.

This is when and where the risk manager really can show their worth – protecting the health and welfare of staff and customers, the assets and cashflow, and ultimately the reputation of the company.

Anyone involved in the corporate risk and insurance management game knows that a full captive for a larger organisation or a PCC-style structure for smaller companies can play a vital role in this effort to manage risk and achieve resilience for the benefit of all – shareholders, staff and society as a whole.

The pandemic has sparked much debate about how such a catastrophic risk could and should be dealt with in future, and not just from a business interruption perspective.

Most European risk management associations have been making sure that the argument for improved fiscal and regulatory incentives for captives is included in the crucial debate about how to make all national economies more resilient in the face of the next pandemic or probably climate change-related catastrophe.

Progress has been made in some countries – not least France where the government appears to get the idea. But elsewhere in Europe – notably Italy – the argument appears to be falling on deaf ears. Anra is doing its best to bang the captive drum for the benefit of the Italian economy and society as a whole, as it could usher in a whole new era of improved and innovative risk management and transfer.

But the risk management community in Italy, as in Germany and elsewhere across Europe, needs help to make sure the argument for captives is properly heard and understood, and that captives are not viewed as the tax dodge that some people in influential positions still appear to believe they are.

The powerful insurance industry lobby must step up to the mark here and support its customers. In the short term, insurers may lose premiums as retentions rise, but in the long run they will be making sure that risk is better managed overall and they can then focus their efforts and capital on the risks that really need to be managed and transferred as the world continues to rapidly evolve.