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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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Robert Walling—Captive Insurance Person of Interest

July 26, 2017

As part of our ongoing commitment to provide thoughtful commentary concerning issues impacting captives and the broader insurance markets, we sat down for a conversation with Robert Walling, principal and consulting actuary at Pinnacle Actuarial Resources, Inc. Read his thoughts on the actuarial profession, predictive modeling, and the need for innovation.

When and why did you decide to pursue a career in actuarial science?

In 1989, I was a high school math teacher in Dayton, Ohio, and a college friend convinced me to give actuarial science a try at Great American Insurance in Cincinnati.

How did your career evolve?

From 1989 through 1997, I was a company actuary doing commercial lines pricing and product management at Great American Insurance and Anthem Casualty. During this time, I was also progressing through the actuarial exams. I transitioned to consulting in the fall of 1997 and immediately realized how much I enjoyed it. The client and industry meeting presentations drew from my teaching experience. Multitasking on the wide variety of client assignments and the need to continuously learn new industries and coverages also suited me well.

While Pinnacle Actuarial Resources, Inc., works in all alternative markets areas, you have built specialty expertise in certain markets and business segments. Was this by design, and if so, why did you choose to specialize in these areas?

When I joined the firm, I thought my client base was going to focus on traditional commercial insurers, and I still do a fair amount of work there. Both then and now, our captive practice has had a tremendous reputation in large, policyholder-owned group captives. Over time, my practice has gravitated toward captives with some groups but with much more emphasis on single-parent captives, risk retention groups, and enterprise risk captives. Relationships with the captive owners, the creativity involved in the coverage design and pricing, and the entrepreneurial nature of the consulting business fit very well with my interests, talents, and priorities.

How do you see the actuary's role evolving, both in a larger sense and within the alternative markets space?

There will always be a segment of the actuarial profession that focuses solely on regulatory compliance and work products, which are somewhat commoditized. However, an increasing number of actuaries are embracing the potential to do much, much more. An insurance professional with a grounding in actuarial science has the potential to branch out into areas like enterprise risk management (ERM), product development, and/or predictive analytics, all of which are fast-growing opportunities in the alternative markets space. These are some of the aspects of my job that I most enjoy. Starting from a foundation of knowing how to analyze data, a little creativity, and some solid communication skills, the potential for actuaries in the alternative markets is virtually unlimited.

Give us some of your thoughts on big data, predictive modeling, and individual underwriting.

Big data, or predictive analytics, has moved from a "nice to have" to a "need to have" in many alternative markets segments. Third-party administrators and claims departments rely on claims analytics to identify frequency and severity trends, fraud, changes in reporting or settlement rates, and many other behavioral changes. Big data is also used to benchmark large insureds' customers and operating divisions. Underwriting and pricing teams use analytics to develop actuarially sound pricing models. Marketing can also identify how customer responses differ by segment. Group captives and large group self-insureds use predictive analytics quite effectively to allocate costs and identify members with improving or deteriorating experience.

What is the most important challenge facing the captive industry, and what should the industry do to meet it?

Disruptive innovation and technology are impacting more industries more quickly than ever before. Autonomous vehicles, nanotechnology, the Internet of Things, 3-D printing, and drones are all potentially pervasive technologies that can have material impact on risk. These trends challenge the captive industry to redouble its efforts to keep pace with its prospective customers and to stay ahead of commercial insurers. I expect that protected cell captive structures that serve as something akin to insurance technology incubators will be especially successful in this environment.

What are the new and evolving risks of which captives need to be aware, and how would you prioritize their magnitude?

There is not a uniform answer for all captives. Rather, it is important for the insured/captive owner, captive manager, and actuary to very actively engage in enterprise risk management, especially once the captive is up and running. An ongoing dialogue about emerging risk and how the captive can play a role in loss prevention, risk mitigation, and risk financing is absolutely industry best practice. This allows for the insured to get the most out of its captive within a broader enterprise risk management framework.

Captives practicing in this manner are certainly evaluating cyber risk (including ransomware), supply chain risk, and reputational/social media coverage, among other emerging and evolving risks. These captives also emphasize using technology and data to proactively intervene and prevent losses from occurring. Every new technology that prevents a negative patient outcome, auto accident, or workplace injury moves us from looking back at prior claims to looking forward to reduce the number of organizations—and more importantly, lives—impacted by losses.

What career advice would you offer to someone new to risk management or insurance?

The current market places a premium on several requisite skills: the ability to work with data, communication skills, and creativity. The educational programs offered by groups like the International Center for Captive Insurance Education (ICCIE) and The Institutes can greatly help in building these skills. The Casualty Actuarial Society (CAS) is also working with The Institutes to develop some exciting data analytics certifications. Alternative markets, industry meetings, and webinars offer tremendous learning opportunities. Finally, there are countless articles available on, other websites, LinkedIn, and Pinnacle's website. From the early stages of my career, captive and alternative markets industry leaders have always been extraordinarily generous with their time. [Read Mr. Walling's thoughts on 831(b) captives.]

How do you stay current on developments in your field?

I try to read and listen to as many industry leaders as possible, as they are closely connected with everything happening in the market. The innovators challenge the status quo with ideas that often target new market realities. Not all of their ideas work, but these leaders are continually stretching the captive and alternative markets in some new and interesting directions.

Given that many captive specialists have retired or are nearing retirement, how do you feel about the future and why?

I am incredibly optimistic about the future. The world we live in is one of change and innovation. Captive industry up-and-coming talent is native to this technology-driven world and has grown up in it. Today's captive specialists and tomorrow's leaders are extremely well equipped to move the industry forward.

Any closing thoughts or comments?

A disruptive, innovative environment carries the potential for business or career obsolescence if one cannot keep up. The captive industry is no different. Innovators that emphasize leveraging data, speed to market, and failing fast will thrive. Companies unable to keep pace will face the same challenges as big-box retailers, taxicab companies, and bookstores.

Robert Walling is a principal and consulting actuary at Pinnacle Actuarial Resources, Inc., and has been in the insurance industry since 1989, consulting since 1997. He is focused on actuarial studies for captives and self-insureds, ERM, commercial lines ratemaking and loss reserving, legislative costing, regulatory consulting, and litigation support. Mr. Walling is a Fellow of the Casualty Actuarial Society (FCAS), a member of the American Academy of Actuaries (AAA), and a Chartered Enterprise Risk Analyst (CERA). He currently serves as a member of the CAS Board of Directors and has been named one of Captive Review's Captive Power 50. He has served on numerous CAS and AAA committees, task forces, and working groups, several as the chairman. He is also a member of the ICCIE faculty. Mr. Walling is a frequent speaker at industry meetings on captives and alternative markets, ERM, insurance regulatory issues, medical professional liability, and government insurance program topics; predictive analytics; and professionalism.

(Photo of Robert Walling, above, is courtesy of Pinnacle Actuarial Resources, Inc.)

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