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An Update on Butler University's Student-Led Captive and MSRI Program

Young Businessmen Meeting Feature
November 27, 2018

Editor's Note: Captive.com recently reached out to Zach Finn, clinical professor and director of the Davey Risk Management and Insurance Program at Butler University's Andre B. Lacy School of Business, for an update on the university's evolving student-led captive insurance company, which is currently entering its second phase. Mr. Finn also provided insights into the role of captive insurance as a "mainstream" risk management tool, changing attitudes in the insurance industry, and the university's response to industry changes and challenges.

Moreover, as its latest response to meeting the demands of a changing insurance industry, the university recently developed a new online master of science in risk and insurance (MSRI) program. Mr. Finn's colleagues, Craig Caldwell, associate dean of graduate and professional programs; Victor Puleo, chair of Davey Risk Management and Insurance; and J.J. DeBrosse, director of graduate and professional recruitment, provided us with information on how the MSRI curriculum was developed.

Backdrop

In October 2017, Captive.com ran an article titled Butler University Provides a Tailored "Captive" Talent Crisis Solution where Butler undergraduate Derek DeKoning (now graduated and working for M.J. Schuetz Insurance Services, Inc., in Indianapolis) spoke about experiential learning and Butler's student-led captive insurance company. He described the captive project as 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. 

Mr. DeKoning shared that while Butler's risk management program is extremely strong in the property-casualty (P&C) 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.

Building the momentum, in November 2017, the Captive Insurance Companies Association (CICA) and the Davey Risk Management and Insurance Program at Butler University announced that they would collaborate on a professional development partnership (read more in CICA and Butler University Partner To Support the Captive Industry). The CICA/Butler alliance aims to help students learn about the depth and variety of career opportunities in captive insurance while giving captive leaders insights on how to make captive careers appealing to young professionals.

As mentioned above, in the latest Butler development, the university's Andre B. Lacy School of Business has introduced an online MSRI program, which, according to Butler, is among the first of its kind in the nation and is set "to help address the gap between the risk and insurance industry's personnel needs and the limited talent pool that exists in today's job market." Applications opened on August 1, 2018, with the program set to begin in January 2019.

Q&A

Having completed Phase 1 of the undergraduate student-run captive insurance program, which, among other things, we understand involved creating and updating insurance financial reports, captive feasibility, captive domicile selection, and underwriting fine arts, please catch Captive.com readers up on Phases 2 and 3 of the captive insurance program moving forward and how the captive will be integrated into the MSRI program.

Phase 2 of the captive will be undertaken by the first cohort of the MSRI program as their capstone course project. Their project will be to complete a feasibility study as to whether the MJ Student-Run Insurance Company should operate as Class II captive and sell insurance products to third-party entities and/or individuals. Many ideas are under consideration for the products we might develop and sell, including student accidental death and dismemberment coverage, live mascot animal mortality coverage for other universities, and student renters insurance, to name a few.

Phase 3 of the captive will consist of setting up the fronting arrangement and distribution systems necessary to bring the aforementioned products to market. Obviously, there is much to be learned as the students undertake this work, including but not limited to the following.

  • Underwriting and rating real loss exposures
  • Implementing loss control techniques
  • Product marketing, sales, and distribution
  • Analyzing losses and adjusting claims
  • Creating annual reports and filings
  • Creating and analyzing financial ratio reports

The MSRI curriculum includes the following core courses: Fundamentals of Risk and Insurance, Risk Control, Big Data and Analytics, Alternative Risk Financing, Leadership, Managerial Accounting, Financial Management, and Capstone with the Butler Captive Insurance Company. Explain how the curriculum was developed and narrowed down into this final offering of core courses.

The following answer was provided by Mr. Caldwell, Mr. Puleo, and Mr. DeBrosse.

The MSRI curriculum was developed based on two things: (1) an in-depth analysis of other master's level risk and insurance related programs, including masters of business administration (MBA) programs with an emphasis in risk and insurance, and (2) numerous focus group and interviews with industry personnel including representatives of P&C, healthcare representatives, brokers, underwriters, re-insurance professionals, and corporate risk managers.

One thing that became clear from the interviews was that the risk and insurance industry does not need us to replicate the highly technical and robust offerings of online insurance designation courses. Instead, what the industry requires is coverage of some general business concepts and more focused risk and insurance content that prepares an individual to manage risk and insurance firms and practices.

The concept here is that as employees move up in organizations, they reach a point where being a subject matter expert becomes less important, and being able to manage subject matter experts takes over. We are preparing people with the technical knowledge and soft skills they need to manage the business activity in the insurance industry.

In a recent story, Mr. Puleo, head of the MSRI program, said, "As one insurance executive said in our focus group: 'This degree is an automatic $10,000 raise for any employee who acquires it.'" What about the program fosters this potential immediate return on an MSRI graduate's investment?

The US economy is currently at better-than-full employment at a time when, demographically speaking, for each retiring baby boomer there is approximately half of a Generation X'er.

The insurance industry has historically been "older" than the rest of the working population, has a harder time conveying its career and value proposition, and has an almost nonexistent talent pool to draw from (comparatively speaking), such that our industry is going to feel this labor shortage pain first, worse, and longer than the rest of the economy.  

While this labor shortage is impacting all business disciplines (insurance, finance, and accounting), unlike the insurance industry, there are around 750+ finance degree programs at US colleges and universities and nearly 2,000 accounting programs.1

There are only around 85 insurance and risk management degree programs generating about 5,000 bachelor of science (BS) graduates a year to fill approximately 500,000 job openings. Furthermore, traditional MBAs are receiving more training in finance, accounting, etc., but are given little to no insurance or risk management material.  

In the past, retiring managers, directors, and C-level folks would be replaced with mid- or late-career professionals. However, demographically speaking, there aren't many midcareer professionals who aren't already in high demand. This forces "newbies" to be accelerated into these roles, and, in the case of accounting and finance, they have actual degrees in what they do.

A professional with our MSRI degree can close a big portion of that knowledge and soft skill gap, relative to mid- and late-career insurance professionals who earned that knowledge through direct experience. Both paths are important; however, the tight labor market is such that there is now a premium on the former because of a lack of the latter, demographically speaking.

A recent Captive.com article opened with the following statement, "Once just a speck on the commercial insurance market landscape, captive insurance companies have become a mainstream risk management tool." Similarly, we see that alternative risk financing is front and center to Butler's program, with a core course in alternative risk financing and capstone experience with Butler's student-run captive insurance company. What are your thoughts about the role of captive insurance as a "mainstream" risk management tool?

I believe the reason these products are not more "mainstream" is that very few people in society and business understand traditional insurance products, let alone alternative risk financing or captives. Indeed, having more BS and MSRI degrees in risk management and insurance at colleges and universities is sorely needed; however, imagine if we just had one or two insurance and risk management courses required of every undergraduate university business student in the same way that accounting, finance, marketing, economics, management information systems, etc. courses are required.

Captives would be much more mainstream. These are easy concepts to grasp and implement once one has been properly educated. For someone with a BS and master's degree in insurance and risk management, captives and alternative risk financing products are just one more tool in their tool belt. They are not that confusing or exotic, and for certain risks, typically those subject to the law of large numbers or high levels of severity and/or parameter uncertainty, they work much better than traditional insurance products.

When I graduated from Indiana State with a BS in risk management and insurance (RMI), there were only 15 university programs. Since then, I have regularly voiced to those in the insurance industry that there is a true benefit to formal insurance and risk management education.

Since most C-Level insurance company and broker executives are 20–30 years into their career, it means they came of professional age during a time when these degree programs largely did not exist. They advanced in their careers through a different path, and many may not recognize or fully appreciate that a different path into the industry is needed.

This is actually one of the primary reasons why we had 20- and 21-year-old students set up a captive insurance company—because it is possible. I wanted the industry to know that something it charges $30,000 to do (captive feasibility studies) can be done by "college kids" for free. This is how these products become mainstream.

It's not a problem with the applicability and usefulness of the products per se. It's that we don't have adequate educational infrastructure to introduce the word "captive" to a future potential chief financial officer, let alone expect him or her to set one up or understand a broker's recommendation. More people don't use captives or alternative risk transfer because they're simply not part of their vocabulary.

What are the long-term goals for Butler's captive insurance company in relation to the MSRI program?

  1. To integrate it into the program as an experiential learning tool that makes the corresponding course material "real"

  2. To generate operating profits that can be reinvested into our academic programs

  3. To avoid catastrophic risks and/or losses

As we see changes in the insurance industry and different attitudes of people within the industry, in your minds, what areas of change are most significant, and how will the MSRI program address changes the industry faces?

  1. A hubris in the industry that it need only announce itself and proclaim a value proposition, and talent, customers, and clients will come running

  2. Retiring baby boomer talent that cannot be adequately replaced by enough of Generation X

  3. A panicked scrambling by industry executives to recruit new talent with gimmicks, like workplace rock climbing walls and free bacon every day, or corporate speak about "making meaning"

  4. An influx of well-meaning InsurTech startups attempting to create new efficiencies, data-mine, and generally automate our way out of the current talent crisis through blockchain, the internet of things, telematics, etc.

The MSRI Program, and indeed all of our work with Gamma Iota Sigma, our undergraduate RMI degree, etc., are all to address the above challenges in the following ways.

  1. The insurance industry has a great value proposition and talent. Customers and clients will come running once the industry does more to invest in the educational infrastructure needed for future talent, customers, and clients to properly understand our products and services.

    Retiring baby boomer talent that cannot be replaced by enough of Generation X. A millennial with an MSRI degree may be as close as your firm ever gets to someone with the equivalent insurance experience and knowledge of a late-career professional. Most Generation X'ers are either spoken for or very expensive.

  2. Millennials want to know the difference between commercial insurance versus personal insurance, life and health versus property-casualty, or being an underwriter versus a claims adjuster versus a broker versus a risk manager. They can actually get bacon at home. Get rid of the gimmicks, roll up your sleeves, and actually explain our industry, or donate to an RMI degree program and let us do it.

  3. All of the InsurTech startups I've researched are too heavy on the Tech and too light on the Insure. Again, I believe this is a by-product of our lax educational system for insurance. Too many people are solving problems that don't exist or are not salient and missing the ones that are. If more InsurTechs aligned themselves with great RMI talent, then you would see the industry being disrupted a lot quicker and more effectively.


  1. (Source: https://www.collegechoice.net)

Copyright © 2018, International Risk Management Institute, Inc.

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