Captives represent one solution to evolving risks: Marsh
Captives can play an increasingly important role in the way the risk-transfer industry innovates to deal with ever-evolving risks, Martin South, president and chief executive officer, Marsh, said in a fireside chat on the first day of Airmic’s annual conference, being held in Edinburgh this week.
South was being interview by Penny Randall Seach, group chief underwriting officer, Zurich Insurance Company in a Global CEO fireside discussion called ‘Global forces driving change: a future outlook’.
Seach noted that the industry must become more innovative to ensure it remains relevant as risks rapidly change. Yet she also stressed that there are also many examples where it has demonstrated its capability in this regard, this including during COVID. She then asked South how he would like to see that to happen.
South started by noting that young people entering the industry, very much think in terms of risk first – and insurance second or third. “We have to think broader than insurance. There are lots of actors and partners there now able to help create a more resilient world. Insurance very important but it is only part of the picture.”
He noted that, with the possible exception of cyber, the actual insurance products offered now have barely changed in decades – yet the risks have completely changed. Using the example of supply chain risks, he noted that while individual products are available to help companies hedge these risks, the insurance industry should find more holistic solutions.
“We really need to do the research deep into the supply chain and rethink the products – and use data and analytics to better price them. We need to think differently, and the insurance industry could play a greater and more meaningful role if it did.”
One example of innovation, he noted, has been the rise of captives in recent years, which he said has been almost exponential in the past three or four years. He estimates that some $25 billion of Marsh clients’ premium is now being retained using this form of risk transfer. “That premium is not coming back but let’s see this as an example of how to best use capital and use tools and modelling capabilities in a way that makes a difference.”
Seach echoed this, noting that one driver of the use of captives has been to cover cyber risk. She said that her view is that the cyber insurance market will never have enough capacity to support the need for risk transfer. “The protection gap is very large in this space. So we should adjust our thinking to embrace alternative forms of capital or solutions – not just use a traditional approach,” she said.
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