“A lot of people in our industry see captives as a product.”

After 26 years in the industry, there's not much Andrew Chambers (pictured) hasn't seen. As a casualty consultant and co-leader of Scott Insurance's property and casualty division, Chambers said. IB that during his early years in this industry, it was a completely different market.

“My first 15 years in the industry, we were in a very soft insurance market,” he said. “The process of serving customers and negotiating renewals was a very different thing than it is today.”

For Chambers, he attributes this change to a change in industry dynamics, which has been heavily influenced by social factors such as social inflation and large claims, which have had a significant impact on insurance company results. According to research from Swiss Re, social inflation has been present since 2015, with the cost of US credit applications rising by an average of 16% over the past five years.

Insurance conversion and captives

“The insurance transaction process is more complex today than it was 15 years ago,” Chambers added.

This difficulty paved the way for other methods of risk financing, such as captives.

“Many people in our industry see captives as a product. But for us, it’s more than a philosophy,” he said IB. “We want to cooperate with our customers and help them develop. If we can understand their business to a degree that allows us to really help them influence their risk performance, they will do better than others in the insurance market. This often leads to more efficient customers who desire a more consistent and favorable solution. Our customers were coming back to us, saying, 'We're doing great. The insurance market makes a huge return on the investment we make. How do we participate in that?'”

For high-end middle-market businesses, those numbers are even higher. Unlike the broader risk pools of homeowners insurance, these businesses are expected to make a profit in the insurance industry in the long run. Poor performance leads to increased premiums on renewals, prompting many to explore alternative risk financing. Here, Chambers emphasizes the importance of viewing this as a financial risk rather than traditional insurance, exploring options such as deductible plans.

“By working together in business, they learn from each other, and it's bigger than insurance,” Chambers added. “Moving from an annual, transactional approach to insurance, to a long-term risk financing plan, reduces the volatility provided by the traditional insurance market. It encourages investment in security and risk management, as well as the development of communication and culture – and we are seeing all of that.”

When asked about the impact of complex risks and changing regulations, Chambers acknowledged that niche risks often fall outside the scope of group captives held by members.

“[When you think about] What's in a member-owned group's bankruptcy, or the first lines of injury, general liability, workers' compensation claims, what you're describing can be a big business risk,” he said. IB.

Instead, these may require corporate risk captives, designed for specific risks that cannot be covered by conventional markets. Chambers also points out that while Scott Insurance focuses on primary property and casualty lines such as property schedules, general liability and workers' compensation, there are captive management companies that focus on business risk programs.

How to effectively advise clients

Here, as Chambers says, comes the absolute importance of understanding the industries and businesses they serve.

“In order to effectively advise, train and advocate for our clients, you must know their business,” he said. It is this deep understanding that allows Scott Insurance to put together solutions that address the specific needs of clients, especially in areas such as affordable housing, which has become a successful area for the company.

“When it comes to our affordable housing technology, we've taken an all-inclusive approach by participating in associations and investing in the growth of the industry,” explained Chambers. “We are doing as much as we can to help grow the industry and provide better insurance solutions in a challenging market. Our dedicated affordable housing practice educates underwriters about the negative aspects of the industry, and, in turn, educates our clients on how the insurance market views them and what they can do to try to correct misconceptions.”

The evolving nature of insurance, characterized by increasing complexity and specialized risks, requires a fast and in-depth approach. Their philosophy of dealing with clients, understanding their businesses, and using alternative risk financing methods such as captives, positions Scott Insurance to successfully meet these challenges.

As Chambers says IB: “It's about financing risk in the most efficient way and reducing the volatility of the general insurance market.”