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The COVID-19 Pandemic: Opportunities and Implications for Captive Insurance

The COVID-19 Pandemic: Opportunities and Implications for Captive Insurance

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The COVID-19 Pandemic: Opportunities and Implications for Captive Insurance explores the challenges presented by today's business and economic upheaval, as well as the hardening insurance market, and what it means for the captive insurance industry.

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Robotic Automation Will Transform Captive Insurance Industry

July 08, 2016

It is a brave new world out there, where robotic automation may be the new future of the insurance industry and of captive insurers.

In "Robots are here to help: an innovative approach to automation in the insurance industry," a May 11, 2016, article published on the Bermuda: Re + ILS website, Chris Maiato and Craig Russell from EY's Advisory practice discuss the use of robotic technology in insurance. 

The article describes ways in which robotic automation will transform the insurance/reinsurance industries, according to the authors. While the story focuses primarily on how these processes will revolutionize parts of the industry, it makes little mention of the impact on costs. Assuming these technologies are successful, a large percentage of the work done now by entry-level professionals in underwriting and risk analysis is likely to be subsumed by computers. This will probably increase both the efficiency and productivity of current insurance business models with a related decrease in expenses.

Our readers may ask what any of this has to do with captives. First, this new automation is unlikely to be inexpensive, at least initially. This argues the benefits will accrue first to the large commercial insurers and reinsurers, which will look to benefit from the technology. Consider this as an analogy to an arms race, where the smaller players are at a disadvantage.
Second, we see the potential for this technology to continue the soft market conditions that exist today. By wringing out expenses from the acquisition and retention of an insured, the underwriter will have the leeway to price risk, especially so-called good risk, with less of a risk margin, thereby exacerbating the pricing problem for captives.

It is possible that captives with long-term strong relationships with a reinsurer may get access to this technology as part of the business. This may in turn help to differentiate their insurance product from another insurer or captive, which is another factor to consider when a captive decides to shop its reinsurance in order to achieve a reduction in reinsurance costs.

If nothing else, it will be fascinating to watch all of this develop.

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