Captives Must Add Risk To Secure Their Niches.

Addressing new risks, increasing profits through third-party business and improving loss-prevention practices are some of the growing roles of captive insurers highlighted at the Ninth Annual World Captive and Alternative Risk Financing Forum.

Captives must find new risks to cover if they wish to compete in the financial-services world, said David L. Wasserman, chief executive officer of Centre Solutions, the keynote speaker.

Especially in a soft market, insurers must create new products. In light of the recently approved financial-services reforms--and the expected wave of banks moving into the insurance business--Wasserman said insurers must expand the definition of insurable risk.

A risk is insurable if it's understandable, measurable, manageable, and able to be applied to modeling, he said. This can involve the insurer injecting itself into a business deal involving the sale or lease of an asset.

"These risks are already there. We're not creating it. They are being held by shareholders, lenders and buyers," Wasserman said, noting that captives can take-a-bit of that risk, add it to their portfolio, and make a profit.

Barry Port, president of Public Utility Mutual Insurance Co., pointed to the role his Vermont-domiciled group captive plays in lowering costs for its members, helping to increase membership and foster customer and employee loyalty.

And Philip Thomas, who is director of risk management for Bass plc, said the most important role of a captive is "to drive the risk-management and loss-control agenda."

During his time managing risk for Bass--which he described as a "white-knuckle roller coaster ride" marked by pub fires, windstorms, earthquakes and Hurricane Floyd--Thomas said he has seen opportunities to improve loss-prevention standards and practices in ways that would have been difficult for a third party.