Roy Hock is the Director of Risk Finance and Casualty Insurance at Valero Energy Corporation. He earned a Master of Business Administration from the University of Texas at San Antonio, a Bachelor of Science from Texas A&M University and holds an Associate in Risk Management (ARM) designation. He joined Valero in 2020 and where he provides leadership over Valero’s Casualty Program, Risk Administration & Finance Group, and the company’s insurance captive. Before joining Valero, Roy served as Director of Risk Management at TETRA Technologies, Inc. and Senior Manager of Risk at Pacific Drilling S.A. Roy has also held various roles in account management, underwriting and reinsurance at international brokerage and insurance companies respectively.
Referring to the term captive management from a captive owners’ perspective, Roy Hock illustrates its similarities with the needs and goals of the commercial insurance ecosystem, i.e., better control of data to drive better decisions. This article delves into the positives and negatives of implementing and risk management information systems (RMIS) for captive owners to provide an insightful view of RMIS implementation in the captive insurance industry.
Risk Management Information Systems and Captive Management
In over 25 years of my career, I have built aspects of or fully implemented many RMIS to help the company meet its goals. Truthfully, I was not always successful in the task, with bureaucracy, lack of buy-in and general management misunderstanding of how a good system works being some serious stumbling blocks. However, we got it right, and yes, it is a “we” because you can never implement a good system without a lot of help. It was not until recently that I turned this system-focused approach to the world of captive management.
From carrier ratings, policy exclusions, causes of loss, vendors and ERM, a simple and standardized data implementation will serve a captive well
The Positives of RMIS: Data, Data, Data
Gathering, analyzing, reporting, and owning good data is key to any successful Captive RMIS. Thinking through how the data will be gathered, vetted, input, stored and interact across the system is key to getting the most benefit. From carrier ratings, policy exclusions, causes of loss, vendors and ERM, a simple and standardized data implementation will serve a captive well. This data integration will enable more precise analysis of risks, policies, premiums, claims and incidents, leading to better risk management and more informed decision-making. Think trends not just in risks but in the financing of those risks and return on investment (ROI). I will note, I am not sure what the future holds with artificial intelligence (AI), but I cannot foresee a future where a fair amount of simple standardized data doesn’t retain its intrinsic value in the decision-making process at least for us humans.
Efficiency and Cost Savings
A well-implemented RMIS should inherently enhance captive operational efficiency. In fact, this is often one of the main drivers for a company seeking out an RMIS. This does not always mean less overhead but enables the captive to allocate resources more effectively towards improving financial, exposure, coverage and risk mitigation strategies.
Reporting and Regulatory Compliance
One of the benefits of having simplified and standardized data is it allows the captive to streamline and automate reporting. This is particularly true for regulatory filings, actuarial reporting, audits and policy renewals. The system should automate these reports and by maintain comprehensive records, simplify compliance and reduce the risk of breaches.
Enhanced Communication and Collaboration
For captive owners, RMIS facilitates better communication and collaboration with carriers, captive managers and brokers. For years carriers have been seeking ways to integrate data with assureds. For them it allows better access to the risk and for the assured a better argument for lower pricing. Though carrier silos still prevail, many are rolling out RMIS access or allowing integrations with RMIS providers to facilitate this knowledge sharing. The same can be said for captive managers and brokers. Both hold some or all of the captive owners’ information and recently, they too have begun to open up to captive owners through integrations or their own RMIS. As captive owners and their internal management have become more accustomed to readily available Information, this expectation is now finding its way to the captive managers and brokers with RMIS often the main arena for this transfer of data.
The Negatives of RMIS:
Costs and Complexity
A captive RMIS is subject to all the pitfalls of any system implementation. These include cost increases due to time delays and scope creep. These can be mitigated through thorough vetting of vendors, collaborative planning, goal setting with internal management and learning to say no now so the system can go live and gain transaction. The “no” today can be more successful as a “yes” tomorrow.
Data Quality Issues
As mentioned above good data is imperative. Nothing will undermine trust in a system faster than bad data. Always know where your data comes from and vet it after it is in the system. By planning time to do this upfront, you go a long way to a successful implantation. By putting a check process in place for ongoing data you will set the system up for a long-term success.
Resistance to Change
Resistance to new technology is a common obstacle. Many people are creatures of habit and are resistant to change. Letting them know how the RMIS affects them personally and everyone else and creating familiarity with the system through training and engagement goes a long way to overcoming this resistance and will eventually facilitate a comprehensive adoption of the RMIS.
RMIS for a captive owner offers significant benefits, including better data management, improved efficiency, automated reporting and ease of communication. However, these advantages come with challenges such as costs, data quality, and resistance to change. Balancing these factors requires careful planning and consideration from Risk Managers, captive managers, and carriers alike. By understanding both the benefits and challenges, captive insurance owners can make informed decisions that leverage RMIS technology to drive greater effectiveness in their risk management strategies.
