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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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Blockchain Technology—Can Captive Insurance Companies Be a Test Bed?

November 17, 2016

Milliman recently released a white paper titled Blockchain: An Insurance Focus by Michael A. Henk and Robert T. Bell. The paper opens with the following scenario.

Imagine an insurance industry without paperwork, a system where some claims are verified and handled almost instantly, and applications/renewals are approved nearly as fast. Imagine being able to minimize fraudulent claims or loss adjustment expenses with a massive, decentralized database that leverages real-time data sources of almost unimaginable size. Imagine the cost savings to your company of improving efficiency across the insurance value chain (from product management, to underwriting, to claims, to customer service), all while potentially increasing the security of your policyholder's data. Now imagine that the technology to do this already exists. It does. The hot name right now is "blockchain technology."

Milliman goes on to point out in the November 3, 2016, report the various impediments that exist to the rapid adoption of this technology, one of which is regulation. In fact, Milliman categorizes regulation as "the most problematic challenge that may delay this technology." Now, suppose there were regulators who were willing to explore how this new technology might benefit not only the companies but the regulators themselves. It might surprise some people, but there are.

On November 9, 2016, the District of Columbia Department of Insurance, Securities and Banking (DISB) presented a webinar hosted by the Captive Insurance Council of the District of Columbia, Inc., to update its constituents on the state of affairs in the domicile. As part of the presentation, Acting Deputy Commissioner and Associate Commissioner of the Risk Finance Bureau Dana Sheppard commented that the DISB was beginning to explore blockchain technology. sat down with Mr. Sheppard to get his views on how the department thought it might utilize blockchain. Mr. Sheppard said he had been introduced to the concept through the banking side of the department, since banks are moving forward fairly rapidly with looking to adopt financial technology such as blockchain. As a result, he began to think about how the technology could be used within the insurance industry and, more importantly, by insurance regulators.

In his estimation, the captive industry could provide the perfect test bed for how regulators begin to employ this concept. He noted that captives, other than risk retention groups, are provided with more regulatory latitude than traditional primary insurance companies. Therefore, the DISB has started to consider how blockchain could be used to entirely restructure the financial analysis, examination, and audit processes for the regulation of its captives. The DISB is interested in leading the way to make these requirements more streamlined and efficient. Mr. Sheppard acknowledged that they were fairly early in this process but were open to hearing from their captive owners, captive managers, brokers, and other service providers on their ideas to make this work.

Just maybe, with progressive thinking like the DISB's, regulators might not be the stumbling block that Milliman envisions.

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