Technology, parametrics may transform captives: Experts

HAMILTON, Bermuda — Disruptive technologies such as artificial intelligence, robotic process automation and parametric coverage are simplifying insurance claims handling and improving underwriting, but captive owners should get ahead of regulatory challenges, according to experts.

Technological advances are automating routine tasks and reducing human error, freeing up insurance professionals to focus on more valuable work, the experts said last week during sessions at the Bermuda Captive Conference.

“The list of technology advancements is endless and is reshaping the insurance and captive insurance industry,” said Michelle Sivanayson, managing director, islands regional leader, at Marsh Captive Solutions.

Parametric insurance is evolving within captive structures, said Emilio Figueroa, head of insurance at Eventual Weather.

Ninety percent of business lines can become parametric policies, Mr. Figueroa said. “The beauty behind it is, once something happens, you make a payment and you’re done with the claim,” he said.

Captives and parametric policies can be used in different ways, he said. “You can remove indemnity expenditures and apply parametric policies under a segregated cell,” he said.

Insurance-linked securities 144A catastrophe bonds using a parametric trigger can be placed in a segregated cell, Mr. Figueroa said.

Companies are building digital segregated cells and captives that enable them to transfer and move risk quickly, he said. “Being able to have that transparency through the captive and the segregation of risk of assets and liabilities is ideal for these type of structures,” he said.

Advanced analytics and AI enable medium- to large-sized captives to demonstrate their sophistication, especially when navigating the reinsurance market, said Jereme Ramsay, director, business development and client relations at SS&C Technologies.

More detailed data gives captives a “stronger negotiating chip” when working with their brokers to access reinsurance, Mr. Ramsay said.

“They’re able to have more control over those discussions to get better cover, better pricing and ultimately reduce costs,” he said.

Advanced data and AI can help captives reassess their risk profile, risk appetite and capital needs when they expand into new business lines, he said.

“Using these tools to generate reports and dashboards allows you to demonstrate to regulators and stakeholders that you’re a sophisticated insurer,” he said.

Disruptive technologies affect various risks, not just cyber and data privacy, creating a complex regulatory environment, said Deloitte partner Muhammad Khan.

“No matter whether it’s professional liability, property or business interruption, everything is impacted by these disruptive technologies,” Bermuda-based Mr. Khan said.

Captive insurers should take a “holistic view” and establish strong governance to manage the risks effectively, he said.

“Regulators do like innovation, they do like transparency. They want to work with captives to simplify engagement,” Mr. Figueroa said. “Most domiciles don’t have a sandbox environment,” like Bermuda, he said.

“Use it. If you have a captive here, talk to the regulators. Be open to creating new ideas, new innovations, new formulations,” he said.

As technology advances and AI more closely emulates human characteristics, the industry should be proactive and prepare for emerging risks through specialized risk management strategies, such as captives, on a global scale, he said.

How insurers deliver technology internally will grow more important, said Christian Dunleavy, group president and CEO of Aspen Bermuda Ltd.

Large language models are already useful for analyzing insurance contracts and insurance policy wordings quickly, Mr. Dunleavy said.

“If you go back 30 years, people were literally holding two pieces of paper up to a light to try to see where the words changed on a reinsurance contract so they could track the changes. I think there’s a lot of potential there over time,” he said.

In the near term, the focus is on ingesting submission and claims data into systems and analyzing that, he said.

“Tech-enabled insurers will be the winners in the long term,” Mr. Dunleavy said.