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Mike Meehan—Captive Insurance Person of Interest

Mike Meehan-December Person of the Month
December 20, 2017

As part of our ongoing commitment to provide thoughtful commentary concerning issues impacting captives and the broader insurance markets, we spoke with Mike Meehan, consultant with Milliman's Boston office. Read his thoughts on the actuarial profession, the impact of artificial intelligence on the profession, and the outlook for market conditions considering the significant catastrophes of 2017.

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

When I was in college, I majored in mathematics. My father, who was involved in the insurance industry as a regulator at the time, introduced me to the term actuary. I spent some time learning about the field, took a couple of classes that focused on actuarial sciences, and later was able to secure an internship at Milliman. I was asked to extend my internship while I finished my degree. By then, I knew I wanted to be involved in the actuarial field, specifically in a consulting environment.

How do you see the actuarial profession changing, especially in light of the advances in artificial intelligence?

While I agree that a lot of jobs and professions may ultimately be replaced by machines, I think the actuarial field will remain safe from being completely replaced by artificial intelligence, at least for the foreseeable future. Advances in technology have allowed for the gathering and analysis of exponentially larger amounts of data, which allows for predictive analytics. I view this as another tool in the actuary's "toolbox." Many professions evolve as the technology supporting them evolves, and I don't think the actuarial field is any different. Actuaries will need to adapt accordingly, but I don't see the need for human involvement being replaced anytime soon.

For students thinking about a career in risk management, why should they consider actuarial science? And if they do, what advice would you provide to help make them successful?

I come from a consulting background, so my take may be a bit different from someone who is not involved in the consulting industry. To be successful, I think you need to be well rounded. I see the younger folks as having matured in a tech-heavy world. Unfortunately, sometimes this leads to weaker communication and interpersonal skills. I think it is equally important to be able to collaborate and communicate with others effectively. In addition, at a consulting firm you need to be a problem solver. Having a strong background in math and statistics is the easy part because folks in the actuarial field tend to be strong academically. Those who are able to differentiate themselves from others are independent thinkers who are able to create those solutions where none previously existed. Over the course of my career, I have been fortunate to work with and learn from a number of talented individuals who possess this unique skill set.

Changing gears, how did you come to specialize predominantly in alternative markets and captives?

My focus on the alternative markets really came about through chance. The Milliman office where I work (Boston) has historically been very active in the alternative market space. As a result, I was introduced to captives, risk retention groups, and other alternative risk transfer entities very early on in my career and I really never looked back. Those early experiences allowed me to meet and develop relationships with a network of well-known, talented individuals in the alternative market, which has continued to grow over my career. Over time, as I gained more experience, it became a natural area for me to focus on.

As captives are encouraged to fulfill more gaps in insurance coverage, what advice would you provide?

Captives are a great way to finance risk. If nothing else, they are a way for an organization to keep track of the cost of risk. I suggest to my clients to stay true to their risk philosophies and tolerance. They may change over time as an organization grows and its balance sheet strengthens. Companies should periodically evaluate what other risks they could finance through their captives and see whether doing so is consistent with their philosophies and tolerance. If it is an exposure that is currently excluded from their commercial policies, then it is certainly prudent to consider financing that risk through their captives. I probably lean a little bit to the conservative side and would say that companies should still focus on using their captives to finance their losses that are the most predictable. It is likely a better option to transfer the nonpredictable risks so as not to risk the captive's balance sheet.

We've just come through a fairly substantial period of catastrophe losses. Do you see these losses impacting the market in a significant way, or has the confluence of insurance capital growth and the entrance by the capital markets curtailed very hard markets?

Over the past few months, I have been reading and hearing various opinions that have covered a wide range of possible reactions by the traditional market to the string of catastrophe losses. These opinions have varied from suggesting there will be virtually no impact to those suggesting significant rate increases in the commercial property market should be expected. This market had been fairly soft in recent years, so it is reasonable to assume that there will be a reaction. Overall, while I don't envision a dramatic market correction, I don't expect that the industry will sit still either. I envision that, while overall the market will see at least a minor increase, some specific regions, such as those with a history of losses related to catastrophic events, may see a much more material change in pricing.

What do you see as the biggest threat facing the captive insurance market?

Rather than identify them as threats, I would say there are two challenges to the industry. First, it is still viewed by many as the alternative market versus the traditional market. For that reason, captives will likely continue to be under a large amount of scrutiny from the Internal Revenue Service, the National Association of Insurance Commissioners, etc. As a result, overregulation of the industry, from outside of the individual domiciles, would seem to be a concern.

In addition, I suspect another issue may be an aging workforce. Many of the folks in the industry today were around when the industry really started to grow back in the '80s. While the industry has prospered and aged, so too has the workforce. I have read and heard several statistics suggesting that a large percentage of the industry workforce today will be retired in the next 5 years. This will pose a significant challenge as the wealth of knowledge and experience generated over the past several decades leaves the market. I know the industry has identified this as a challenge and is making strides to attract new, talented individuals to the market through mentoring programs and educational tracks being held at conferences. This initiative is extremely important, and the results of these efforts are going to have a direct impact on the industry over the next several decades.

How would you weigh in on the proliferation of captive insurance domiciles we have experienced? Are they ultimately a benefit or detriment to the captive industry?

Generally, I view competition as a good thing. Each of the newer domiciles has recognized the value in having a captive law enacted in its state or territory, and having more domiciles does provide more choices for the captive owners. A challenge for the newer domiciles is having an experienced staff to be able to properly regulate captives. An unfortunate situation in a single domicile can reflect negatively on the industry as a whole. Therefore, it becomes critical that each domicile be able to meet the unique challenges of regulating captive insurance companies versus traditional insurers. From what I understand, the captive regulators are a collaborative group. Regulators from several of the more mature domiciles seem to be more than willing to share their expertise with representatives of other domiciles when needed because it is in the best interest of the industry as a whole. They recognize the need for the industry to remain successful even outside of their own borders.

What do you do to stay current these days, especially with the amount of information that is available?

There is certainly no shortage of options available to keep current today. The bigger challenge is sorting through all the options and picking the ones that are the best for you. I tend to use a variety of media and other sources. I receive a few daily email subscriptions, such as Captive.com's Captive Wire. Some of these are updated and sent out more than once a day, which makes it relatively easy to keep up, particularly with any major issues. I also still flip through certain printed periodicals because they will often add a bit more depth when addressing particular issues. In addition, I learn a lot from my colleagues, peers, and other business contacts in the industry. I attend a number of industry conferences and events, which allows me to meet with a large number of industry professionals. It is helpful to hear from other folks and get their perspective on industry issues. Oftentimes, these conversations can help fill in any gaps in knowledge, much like a captive can help finance any gaps in coverage!

Mike Meehan is a consultant with the Boston office of Milliman. He joined the firm in 1993. Mr. Meehan has experience with loss reserving, ratemaking, feasibility studies, and financial pro formas for insurance companies, captives, risk retention groups, self-insurance groups, excess insurance pools, municipalities, and Lloyd's of London syndicates. In addition, Mr. Meehan has assisted in the review of various rate filings for the Rhode Island Insurance Department. He also has experience with workers compensation residual markets.

(Photo of Mike Meehan, above, is courtesy of Milliman.)

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