Ready for Liftoff: BHMS Backs Boost

A captive is an insurance entity that a business creates, rents, or owns in order to self-insure risks. A cell captive, sometimes also called a protected cell captive or segregated cell captive, is a specific insurance captive structure that allows an entity to segment or separate business in one cell from that in another cell, so that a particular cell’s assets and liabilities are insulated from anything that happens in another cell (even if both cells are part of the same overall captive facility).  Using captives to self-insure risk offers businesses a number of benefits: they can participate in some or all of their program’s underwriting profitability, maintain end-to-end control over risk (including pricing and claims handling), and avoid paying significant overhead fees to a “middleman” insurer. Companies have several options for structuring and utilizing an insurance captive. They might build a single-parent captive, pool risk in a group captive, or make use of a cell captive. In this blog, we’ll take a look at each.  In a single-parent captive, a company will often partner with a fronting carrier to reinsure at least part of their own risk. These are most commonly used by very large companies with exposure to multiple lines of business, which they can insure through the same captive entity.  Example: A national food-delivery business wants to provide insurance to its restaurant partners, to protect against the risk of lawsuits related to food safety for meals delivered through the service. It discusses partnerships with several major insurance carriers, but none are willing to provide the level of coverage that the business is looking for at a reasonable price. To get what it needs, the food-delivery business sets up a captive to reinsure a fronting carrier partner, enabling the business to insure its own risk and provide the coverage it needs to its restaurant partners. Setting up a single-parent captive is a considerable undertaking with high capital requirements and a complex setup, with significant ongoing operational requirements going forward. In order to make sense financially, it usually requires a high volume of premium. For that reason, this option is usually only viable for very large businesses. For businesses that can’t afford (either in time or in money) to set up their own captive, a second option is to partner with other businesses in a related industry to set up a group captive. In this scenario, a single captive maintains portfolio capacity that can be shared by a group of entities. The entities can then pool risk together in the single captive. Example: Several real estate companies form a partnership to share a group captive to pool their similar risks. Each company contributes a certain amount of capital to fund the captive, and the capacity is shared among the partners. The participating real estate firms are then able to leverage the captive’s capacity to exercise greater control over their risk, and avoid paying high fees to middlemen. This can allow the partner businesses to share risk (and benefits) between them, and works well for trade associations and other groups of companies in related industries, that share similar risks. However, since the fund is shared between partners as well, one partner’s negative returns can impact the other partners involved.  In a cell captive, the business first sets up an entity called a core, which is a similar process to setting up a single-parent captive. Once the core entity is complete, however, the business can much more easily spin up additional cells within the captive structure. The financials for those individual cells are separate from each other, rather than the combined funding of a single-parent or group captive. For many companies, however, using a cell captive doesn’t mean building one themselves. While there are use cases for single-parent cell captives, most businesses that create them then rent out cells to other businesses. Using a cell in another company’s captive entity (also called captive-as-a-service) allows a business to reap the benefits of an insurance captive at a much lower cost. We’ll look at some examples in the next section. The first step in creating a cell captive is to create the “Core” entity. This process is similar to building a single-parent captive:  Once the core captive entity has been created and adequately funded, the owner can spin up individual cells within the captive’s structure to support different lines of business, segments, or partners. The Department of Insurance will still need to approve all new cells, but the process is much more streamlined than in prior cases. New cells can often be set up in weeks instead of the months or years typically needed for entirely new captive entities.  Captive cells’ assets and liabilities are then statutorily protected from each other (which is where the ‘protected cell captive’ name comes from). This means that if one cell has a difficult year and experiences significant underwriting loss, the assets of the neighboring cells can’t be used to fund that loss.  There are multiple ways that cell captives are used, including offering captive-as-a-service (also called rent-a-captive) to other partners or businesses, and separating different parts of the parent company’s business for performance tracking.  In a captive-as-a-service or rent-a-captive scenario, the company that owns the captive core would allow other businesses to use cells in its captive. For a fee, the owner can set up a new cell specifically for the partner business, and manage it on their behalf. This lets the partner business leverage the owner’s infrastructure to achieve many of the same benefits of a single-parent captive, without the cost and complexity of creating one. Example: An insurtech specializing in commercial insurance has built a very strong customer base, and wants to further grow its business by participating in some of its own risk. However, building a full captive is too resource-intensive for the insurtech to take on. Instead, the insurtech partners with a CaaS provider and rents a captive cell. The insurtech then uses the cell to self-insure some of its risks, enabling it to participate in the underwriting returns and further scale towards a full-stack insurance business.  While the most common reason for building a cell captive is to rent out cells to other businesses, there are a few reasons a company might build one for its own use. Because the cells’ financials are statutorily separated from each other, a cell captive allows a large enterprise to delineate between different lines of business or geographic regions, and monitor their performance separately. Example: A nationwide property management company offers several insurance products to its customers to help protect their personal property and finances.  For planning and budgeting purposes, each line is supported by an individual cell in the management company’s cell captive. Over the course of the fiscal year, several lines perform over their targets, while one line significantly underperforms. The other LOBs’ budgets are unaffected by the low-performing LOB’s losses, and the company has clear visibility into which of its products are doing well and which may need a course correction. Cell captives provide a number of benefits to both their owners and the end users: Cell captives are popular for a reason: they offer significant value to both the companies with the resources to build them, and the companies that would rather rent a cell than build a single-parent entity from scratch.  To learn more about Captive-as-a-Service with Boost, contact us.

It was a busy October for the team at Boost Insurance, wrapping up with one of our favorite industry events: Money20/20. The conference was a super interesting contrast to ITC which was laser-focused on insurance, while Money 20/20 was more about fintech in general and much, much bigger! With fintech about ten years ahead of insurtech in terms of maturity, it’s interesting to see the level of innovation and diversity of companies in our big brother industry. Here are some of the big trends we noticed. One of the really interesting trends that kept being repeated at Money20/20 was a shift in mindset among both fintechs and banks. In the past, they have tended to see each other as competition for consumers’ business and attention but now everyone is moving towards viewing each other as complementary vs. competitive.  We saw multiple collaborative efforts between the upstarts and the established, working together to create a better customer experience. This works because they each have a specialization (fintechs excel at meeting modern consumer expectations and banks are experts in profitably navigating a very regulated, very complex business), and partnership lets them bring both those strengths to the table.  This was extra interesting to us at Boost because it reflects what we see in insurance, with insurtechs and carriers working together and bringing their own strengths together to meet modern consumer needs and expectations. For example - Boost has built a modern tech platform making various insurance products available via API but partners with established reinsurance companies to facilitate risk transfer. There will still be winners and losers between the incumbents and the upstarts, but as collaboration and competition continue consumers will be the clear winners. A trend I’ve written about before, and one that we continue to see play out, is tech companies’ focus on affinity groups. Fintechs are springing up all over with explicit goals of serving a relatively narrow group of people and serving them well. Companies like Paceline for people focused on health and wellness, Daylight for the LGBTQ+ community, and First Boulevard for African-Americans are just some of the fintechs concentrating on being the best option for a specific set of consumers.  This is pretty much the opposite of traditional one-size-fits-all programs - instead of creating something broad that can be good enough for the biggest slice of people, creating something very targeted that can be great for a specific niche. This trend is great news for consumers who traditionally have not been served well by financial services in general. At Boost we’re starting to work with more affinity-focused companies because our modular, customizable product structure allows partners to tailor insurance for their customer needs. It’s exciting to be part of making insurance more accessible to all groups of people! Finally, it was really exciting and validating to see so much interest in new approaches to traditional industries. Finance and insurance have historically had a reputation for being very slow to change, sometimes for good reason (highly regulated, handling people’s money is a big responsibility, etc). This year though there’s a ton of interest in potential innovations, look no further than the enormous presence of blockchain and crypto-focused companies at Money20/20! Boost met with a TON of different companies during the show, and we cannot talk about anything yet but be on the lookout for some very interesting things coming in the near future! Money2020 was a heck of a conference and while my conference year is wrapped, the Boost team will be out and about at shows the rest of the year. We are looking forward to more opportunities to meet people in 2022, so if you did not get a chance to connect with us at Money2020, just drop us a line.

We founded Boost with one (very) big goal: to modernize insurance.  Traditionally, it’s been hard for people to get the coverage they need, or even understand what’s available to them. One-size-fits-all products, irrelevant bundled-in coverages, and difficult-to-parse policies mean that many people who would benefit from the protection of insurance just go without - and risk unnecessary losses. Here at Boost, we’re working with innovative partners across the industry to change that, and help ensure more people have access to the loss protection they need. That’s why today we’re excited to congratulate our partners at Overalls on exiting stealth mode with their official public launch. The Overalls all-in-one protection platform offers a way to tap into an overlooked employer benefit - supplemental insurance. Few employees take advantage of these offerings - largely because, Overalls explains, they’re confusing and the benefits are unclear.  Overalls aims to change that, with an algorithm that can analyze consumers’ financial milestones and targets, with information about their personality and lifestyle, to create a personal portfolio of the best plans available. Through their employers, consumers are able to access the Overalls platform and source the right insurance protection for themselves and their families, more easily than ever before. So how does Boost fit in? Our insurance-as-a-service platform provides the infrastructure for partners like Overalls to easily build and manage their insurance businesses. We’re proud to provide Overalls with important technological, operational, compliance, and capital components they need in an elegant turnkey solution, so they can offer their customers a seamless, tailored buying experience with policies designed for modern lifestyles. You can learn more about Overalls at their website, and in an interview with co-founder and CEO Jon Cooper. For more on how Boost can help you unlock significant recurring revenue with insurance, don’t hesitate to drop us a line - we’re always happy to talk.  P.S. - Attending ITC 2021 in Las Vegas this week? So are we! You can catch Boost at Booth #713