Greg Lang, the founder of the Reinsurance and Insurance Network, takes us on a journey through the world of captives and how some seemingly new concepts are actually rooted in history. In this article, we'll explore the connections between old and new ideas in the insurance and finance industries.

Uncovering the Familiarity in 'New' Insurance Topics

Reflections from Pompeii

During a tour of Pompeii, a city buried by volcanic ash yet remarkably preserved, our guide pointed out how little society has changed in the last 2000 years. From reflectors embedded in the roads to fresco paintings on the walls that resemble Renaissance art, these ancient elements provide a fascinating glimpse into the past. Even a tile mosaic in a wealthy merchant's home had a "beware of the dog" sign, suggesting that legal and administrative systems were in place even then. Taxes, including the sale and taxation of urine from public toilets, were a part of daily life. It's clear that some things truly never change.

Open Finance: Revolutionizing Financial Services

Open finance is set to revolutionize financial services by blurring the lines between banking, insurance, and payment systems. While the term may seem new, using financial data to underwrite insurance has been around for a while. Credit-based insurance scores were introduced in the 1990s by the Fair Isaac Corporation (FICO), and approximately 95 percent of auto insurers and 85 percent of homeowners insurers use them in legal states. Credit scores assess a customer's risk profile, helping to determine the likelihood of future claims and price policies appropriately. Individuals who manage their finances well are more likely to manage insurance risks effectively. Elon Musk, who created PayPal, has been discussing the concept of open finance since 2000 and changed Twitter's name to X to highlight his vision of a one-stop financial platform.

ILS's Annual Conference: Bridging Insurance and Science

The ILS Bermuda Convergence conference, held annually since 2020, brings together key players in insurance and ILS for networking and education. Insurance converging with private equity is an example of the open finance concept. This year's meeting added a unique twist with a keynote speaker who was a climate scientist and oceanographer, offering insights into the intersection between climate, ocean science, and risk management. Another speaker presented work on deep sea sensors, which could help insurers better understand oceans and hurricanes. It's clear that these conferences are not just about business but also about advancing knowledge in various fields.

ILS and Captives: A Growing Connection

2024 was another record year for ILS, with investors finding an almost unlimited appetite from insurers, reinsurers, corporations, and governments. For the first time, ILS covered cyber risk, and investors benefited from geographical diversity and a wider array of risk types. We often hear that it was also a record year for captives, and there are similarities in terms of geographical diversity and risk types. While the size of the captive insurance market is unknown as most financial information is private, we do know that captives have been covering cyber risk and funding for hard-to-place property for a long time. The ILS market is catching up, and these two sectors are becoming more intertwined.

The Power and Perils of Data

Many consumers feel that they own or should own their financial data and control who has access to it. However, no one knows exactly who has access to their data or how much data they have. Data is a powerful tool that can be used for good, but there is a disturbing trend of some promoters trying to manipulate data and fit risks into captives. The numbers often don't make sense as they ignore loss development and move money between funds to make proposals look better. It's crucial to protect our data and understand how it can be used against us.Greg Lang is the founder of the Reinsurance and Insurance Network and can be contacted at: glang@rainllc.com.Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.