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A Guide to Strategic Planning Environmental Analysis

Strategic Planning-SF
January 09, 2017

One of the fundamental building blocks of strategic planning, or for that matter an annual tactical plan, is a complete environmental analysis. An effective environmental analysis helps to identify threats and opportunities that can have a major impact on your captive and hence your strategic planning. Strategic planning or annual budgets created without this input exist in a vacuum, lacking any attachment to the real world. This assessment can highlight niche opportunities for exploitation as well as force management and the board to make tough decisions when warranted.

Becoming adept at conducting this sort of analysis for strategic planning also helps prepare management and the board to move beyond strategy toward true generative thinking. has previously provided several basic articles on generative thinking: "Reinsurance Markets, Captives, and Generative Thinking," September 25, 2014; "Does Your Captive Board Spend Most of Its Time Reviewing the Past? Should It?" September 29, 2014; "Captive Insurance Conferences: Governance as Leadership = Generative Thinking," September 18, 2015; and "Captive Insurance Independent Directors May Utilize Generative Thinking," June 22, 2016. Over the course of the first quarter of 2017, we intend to revisit these articles and expand on the basic knowledge outlined in them to better assist captives with handling the rapid changes occurring today.

Before we get to our sample 2017 environmental analysis, it is important to differentiate this work from a SWOT (strengths, weaknesses, opportunities, and threats) assessment. The environmental analysis for strategic planning is focused solely on variables that are external to the captive and, for the most part, beyond its ability to control. A SWOT analysis, on the other hand, incorporates a review of the captive's internal operations, staffing, and policies, as well as an external assessment of the business landscape. While both are important, the environmental analysis is used to create a number of potential scenarios allowing management to plan for these eventualities and alter their business decisions accordingly. For purposes of this discussion, we will focus on the components of an environmental analysis.

While the future is inherently unknowable, trends can be discerned and thus planned for. This planning may take the form of a 1-year tactical plan or budget, a 3–5-year strategic plan, or a look 10–15 years into the future. An environmental assessment forms the foundation for each of these exercises. Our purpose in utilizing this model is to anticipate the contours of what the environment may look like. In doing so, there are typically four or five factors at play. The former is known as a PEST (political, economic, social, and technological), and the latter is known as a STEEP (where the second "e" denotes "environment").

This author has utilized both models for performing an environmental analysis; however, for strategic or tactical plans, the PEST approach is usually sufficient.  Thinking about PEST in the context of a captive insurance company, some of the components of each of the four main factors are as follows.

  • Political
    • Regulation on a global, federal, and state level
    • Legislative on a global, federal, and state level
    • Rating agencies
  • Economic
    • Financial markets
    • Primary commercial markets
    • Reinsurance markets
  • Social
    • Demographic changes
    • Behavioral changes
  • Technological
    • Big data
    • Disintermediation
    • Cyber-crime

This list is not intended to be all-inclusive; in fact, there are myriad other similar components that could fit under each of these factors. Readers may also recognize that it is possible for components to fall within several of the main factors, such as "privacy." Privacy could be considered as a political, social, and/or technological element. What is important is for captive management and boards to think about these areas and derive their own list, first on an individual basis and then collectively to arrive at a starting environmental analysis for a strategic plan.

The author, as a former CEO of a captive insurer, used to develop a PEST analysis on an annual basis and present it to the board of directors. Management's views served as a starting point for a discussion around each of the four factors. He did so not to usurp the board's responsibility but instead to make the most efficient use of the board's time, given their other responsibilities. That's not to say the board and management could not develop the PEST factors collaboratively, assuming the board has agreed to make the necessary time available.

The following is a condensed sample version of a PEST analysis that a captive insurer might complete. We have provided recommended source material for each of the four factors. Given the proliferation of information and data today, captives that undertake an environmental analysis will probably find the need to winnow the material down to arrive at a concise synopsis. A corollary point is to continue to explore new sources of information, especially where they challenge existing viewpoints. We all suffer from both confirmation bias and hindsight bias, whether we acknowledge it or not. By continuing to seek out differing opinions, you can lessen the chance that your environmental analysis completely misses an important inflection point.   

Sample PEST Analysis


Sources of information include the Federal Insurance Office (FIO), the National Association of Insurance Commissioners (NAIC), the National Conference of Insurance Legislators (NCOIL), and any of the Big Four accounting firms.

Items for discussion include the following.

  • FIO focus on captive insurance companies

  • NCOIL support for state-based regulation

  • NAIC's captive research study

  • NAIC focus on 831(b) captives

  • Internal Revenue Service focus on 831(b) captives

  • Own Risk and Solvency Assessment (ORSA)

  • Solvency II regulations


Sources include A.M. Best, the Insurance Information Institute (III), Reinsurance Association of America (RAA), the Big Four accounting firms, the major actuarial firms, major brokerage firms, global reinsurers, and Lloyd's, and, for investments, the Federal Reserve and the major investment firms and money managers.

Items for discussion include the following.

  • State of the various lines of business, including pricing expectations and losses

  • Review of the property and casualty industry

  • Merger and acquisition analysis, especially for reinsurers

  • Convergence of reinsurance and alternative capital alternatives

  • Outlook for the bond market and interest rates

  • Inflationary outlook and gross domestic product growth


This factor is probably the most difficult one to research. Suggested sources of information are Bureau of Labor Statistics, US Census Bureau, Pew Research Center, major university research, and any number of futurist organizations, including World Future Society, Association of Professional Futurists, and World Future Studies Federation.

Items for discussion include the following.

  • Demographic trends

  • Outlook for privacy

  • Adoption rates for technology

  • Labor force participation and composition

  • Purchasing habits


Arguably the factor likely to have the greatest impact on captives is technology. Sources of information include major technology companies, Silicon Valley blog sites, FinTech blogs, major accounting firms, and major reinsurers—and don't forget the regulators.

Items for discussion include the following.

  • Big data—source of disruption

  • Cyber

  • New business models

  • FinTech adoption

  • Alliances between old line primary insurers and new start-ups

  • Possible disruptive sources

Environmental analysis, as noted, is a key component of strategic planning. All captives should understand the basics of how to conduct such an assessment and adopt a business model that encourages management and the board to do so on a continual basis. A Gaston Berger quote this editor likes is as follows: "The purpose of looking at the future is to disturb the present." In essence, that is what conducting an environmental analysis is all about—uncovering trends and changes that have the capability of changing how your captive operates.

Copyright © 2017, International Risk Management Institute, Inc.

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