Less capacity for cross-class placements
There is no one-fits-all solution. Different clients will have different needs and the onus is on all parties, including captive managers, fronting insurers, brokers and risk and insurance managers to sit down and talk through the available solutions. This can include a number of creative and innovative options, such as alternative risk solutions and joint, scalable captive solutions, such as a multi-captive 'mutual' approach.
Single captive stop loss covers are becoming more challenging to place as there is a limited market for multiline products. While they are beneficial programme placements from a captive perspective, it is not always possible to enter into long-term agreements on cross-class aggregates when the market is hardening. Hence a more traditional approach may be required, with separate towers for different classes of business.
The value to clients of a traditional approach to self insurance is that they can widen their universe of potential re/insurance carriers, without necessarily paying a great deal more in premium. There is also the option to invite more reinsurers to the table if each line of business has its own stop loss policy. This way the whole market can be involved and insurance buyers can be sure they are getting a more competitive placement.
Insurers can also benefit from clearer insight into their maximum losses when taking a line by line approach to insurance. For clients concerned about the impact of higher deductibles and how this may cause greater volatility on their balance sheets, brokers, insurers and captive managers are working together to offer innovative solutions. Loss portfolio transfer, for instance, can spread the cost of severe claims year over, say, three to five years, offering capital relief and smoothing out the impact of a loss.
In this challenging environment there has never been a greater need for collaboration to develop solutions for insurance buyers and captive owners. The hardening trends are unlikely to reverse anytime soon. Even when capacity returns and premium rates decrease, alternative risk solutions can continue to offer value and complement traditional insurance placements and what is clear from the many discussions around this topic today is that the solutions implemented today will continue to play a large part in our clients’ long-term risk management strategy.
For insurers and service providers, this hard market provides an opportunity to differentiate and engage meaningfully with our clients towards managing global risks. It is about ensuring there is an alignment of interests and that we are ultimately arriving at the best solution for all parties. All parties collaborating towards the same goal builds trust, understanding and inevitably value.