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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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Butler University Provides a Tailored "Captive" Talent Crisis Solution

D DeKoning-SF
October 11, 2017

Talent Crisis or Talent Cliff

The world has been reading about and discussing the talent crisis for some time. George Leite, head of business development at Aon Insurance Managers in Bermuda, shared with the 2017 Bermuda Captive Conference attendees that failure of the insurance industry to attract and retain top talent has become a chief concern and priority. The significance of the talent crisis in the industry can be summed up numerically with figures from McKinsey and Company shared by Mr. Leite. The number of employees age 55 and older has increased by 75 percent over the last decade and is around 30 percent higher than the rest of the economy. At the same time, only 25 percent of the insurance workforce is under the age of 35. According to McKinsey and Company, the industry will need to fill 400,000 positions by 2020 as a result of the baby boomers retiring.1

In the September 2015 edition of IRMI Insights article titled "Solving the Insurance Industry Talent Crisis by Investing in Risk Management and Insurance Graduates," Dr. Brenda Wells, Distinguished Scholar of Risk and Insurance at East Carolina University, said, "With such a large chunk of the work force retiring in [the near future], it is arguably more of a talent 'cliff' than just a mere 'crisis.'"

Dr. Wells reminds us that the "primary source of talented new employees is always the local or regional university" and that "[h]istorically, many insurance organizations have used general college recruiting programs, attempting to persuade students from all disciplines to consider a career in the industry." She goes on to say that, in recent years, there has been a "marked increase in more targeted recruiting efforts aimed at finding young professionals who are dedicated to the insurance industry … from dedicated collegiate RMI program[s]." In Dr. Wells's opinion, recruiting and hiring risk management and insurance (RMI) majors is a good investment for the following reasons.

  • RMI students have been sold on the industry and need no convincing of its merits.
  • RMI students have dedicated themselves to the industry with their time and money. This means lower turnover, which protects the bottom line in a significant way.
  • RMI students are more likely to become productive sooner because they have "progressed along the industry learning curve" prior to their first day on the job.

Butler University

Enter Butler University. Butler University is home to the nation's first student-run captive insurance company. According to Mr. Leite, the unique strategy of Butler University's risk management and insurance program and its captive formation is that, unlike other universities with similar programs, it is completely driven and led by millennials.

Butler student Derek DeKoning followed up Mr. Leite's comments by sharing that Butler University's RMI students are immersed in experiential learning. By forming and operating their own Bermuda captive, the students obtain hands-on exposure to the following.

  • Insurance company operations
  • Formulation, development, and pricing for insurance products
  • The use of captives as a risk management tool to lower the total cost of risk, expand coverage, and provide increased program control.
  • Interactions with risk managers, brokers, underwriters, actuarial, loss control experts, etc.
  • Reinsurance transactions

Zach Finn, clinical professor and director of the program, said, "Other universities have told us we've now disrupted the market—that we are basically akin to the first finance program to have students manage an endowment. Many believe that in the next 20 years, this will be the standard for insurance and risk education."

The project took shape at Butler in 2016 when Mr. Finn assigned students an objective comparison of insurance domiciles both in the United States and overseas. Two groups of students each were assigned five competing markets for which they conducted analyses on capitalization, premium and excise taxes, and other standard comparisons. Mr. Finn then asked them to contact the regulators of each domicile to check responsiveness.

"Bermuda and Vermont were the only two domiciles that got back to us—within 4 hours," Mr. Finn said. The captive feasibility study noted, "Bermuda is the oldest and most established captive domicile in the world" and "one of the largest international markets for insurance." The study added, "The main advantage that sets Bermuda above [other domiciles] is the regulatory environment … and the access to professional infrastructure. The regulatory environment is robust, yet flexible, as the regulation is risk-based."

What Does the Butler Captive Insure?

"We identified risks we might want to write and underwrote those. We identified loss-control recommendations and specimen policies and talked about rating and audit, and just everything," said Mr. Finn. "I'm a big believer that all business education should be a mix of academic and experiential."

Mr. DeKoning shared that the Bermuda captive will insure the following.

  • Butler's mascot, an English bulldog nicknamed Trip who has 20,000 Twitter followers
  • Butler's bomb-sniffing dog, Marcus
  • A $150,000 primary blanket limit relative to Butler's planetarium, telescope, fine arts collection, and musical instruments
  • The first $50,000 of commercial general liability cover for Butler's student-run start-up businesses

Already, the students have engaged in loss mitigation efforts, according to Mr. DeKoning. The students participate in tours throughout the university that have included the observatory and the rare book room. Findings include the following.

  • A leaky drain observed above the book room that is prone to leaking into the room.
  • A $1 million (plus) valued telescope at the observatory reacts to close the observatory dome if disturbed by mist or a drop of water. However, if the power is out, the dome will remain open, and if a drop of water comes into contact with the telescope, the repair is $100,000.

Premiums from deductible reimbursement policies will be used to fix the leaky drain and to put in a redundant power generator at the observatory. These are just of few of the many projects expected to be undertaken. Another future project includes documenting and cataloging all of the fine arts on campus—a veritable treasure hunt.

Student-Led Collaboration

According to Mr. DeKoning, the project is a work in motion that will be passed along from outgoing to incoming students. This creates a real-life aspect of positioning students to figure out what do with things that do not always present themselves as black and white.

The program also possesses a real organic and collaborative aspect of inviting the students to direct and develop its shape through their eyes. In its current form, one team of students is in charge of business planning and another team of students is focused on marketing. Aon also hosts two interns from the program annually. The interns return to the group as class leaders and peer educators sharing with their student colleagues their real-life experiences. The marketing group has been pivotal in bringing public and regional focus to the program through social media by bringing awareness into local high schools to prospective students.

Mr. DeKoning said that a Gamma Iota Sigma (GIS) call-out meeting brought record turnout, many of whom were young first-year students specifically interested in being involved in the student-run captive program. (Note: GIS is the international business fraternity for insurance, risk management, and actuarial science students.)

Mr. DeKoning shared that while Butler's risk management program is extremely strong in the property-casualty commercial space, Butler also has an actuarial program with a heavy life and health focus. The expectation is to broaden these out into an all-inclusive all eyes on approach offering. There is a real sense that this extraordinary student-driven endeavor will continue to evolve and grow into something even greater and more remarkable.

"This captive was formed to change the way insurance is taught in schools and help alleviate the current talent crisis in the insurance industry," Mr. Finn said, "It’s already serving that purpose."

See the latest list of risk management and insurance programs, including Butler University, in the IRMI Directory of Risk Management and Insurance Programs at U.S. Colleges and Universities.

(Photo of Derek DeKoning, above, is courtesy of Bermuda Captive Conference.)

  1. McKinsey and Company, Building a Talent Magnet: How the Property and Casualty Industry Can Solve Its People Needs, 2010.
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