Issues & Answers: It’s All About Claims

Michael Maglaras, President of Michael Maglaras & Company, an international captive consulting firm, said that the captive insurance market is flourishing. “There’s a lot going on, and I’m extremely optimistic about the future in this challenging market right now,” he said. Following are excerpts of an interview.

Michael Maglaras
President
Michael Maglaras & Company

“Captives flourish in these soft markets because when you get in the business of adjusting and managing your own claims, you don’t want to go back.”

At a Glance

Founded in 1988 by Managing Principal, Michael Maglaras

How would you describe the state of play in the captive marketplace?

I’m more optimistic about the future of captive insurance companies than I have ever been since I started in the industry, period. I’m delighted to be able to say that. I’m sanguine about our future in the captive industry. That said, I’m also seeing some darker clouds on the horizon but in general, I’m very optimistic, and envision a very bright future for the captive industry.

You’ve been quoted as saying “it’s all about claims,” when you speak about captives. What do you mean by that?

What is the least sexy topic at a captive industry meeting? It’s claims. Claims management, how to reserve, how to adjust a claim, how to go to RFP for defense counsel, how to manage the litigation process. If you want to clear the hall out fast in the captive industry meeting, announce you’re having a seminar on claims. But ask yourself this, “What is the lifeblood of the captive movement, and what is the lifeblood of captives?” It is, in fact, the management of claims. At the end of the day, captives are great, huge claim paying mechanisms.

Assuming we’re in a hard property and casualty insurance and reinsurance market, what effect is that having on the number of captives being formed?

I would say that we are not in a hard market but rather a course-correcting market. You’re in a hard market when pricing deteriorates, when availability of limits deteriorates, but you’re mostly in a hard market when you can’t get it. We’re not there yet. We’re in a course-correcting market. The key here is understanding that captives are going to play an increasing role in this course-correcting market by doing something that they haven’t done in a long time. That is, not replacing coverage but rather augmenting it. The way to augment the property and casualty insurance market is by using your captive insurance company. In a hardening course-correcting market, we’re going to see a brand-new role for captives augmenting existing P/C coverages.

Do you think there’s a secret sauce that guarantees the superior performance of a captive over an extended period of time?

There is a secret sauce, and it is ownership engagement, period. I’m a business owner. I buy commercial insurance. Once I authorize that check to be signed to renew any of our commercial insurance programs, I’m an industry professional. If I had my insurance placed in a captive, and they’re not large enough for me to do that, but if I did it, where would my mind be focused? My mind would be focused on, what’s the premium I’m paying and what’s the net retained risk I’m taking in my captive. My mind would be focused on looking at quarterly financial results on claims in reserve to be paid. The one thing about captives that make them so very different over time is it force functions ownerships’ laserlike attention on that balance sheet.