The future for captives: A strategic global business service model

A challenging time for captives

It's getting harder and harder to remain a captive. Income is down, CAT losses are up, and customers are demanding new forms of interaction which necessitate investments in digital technologies. Captives are struggling to find ways to do more with less.

Captives face wider global challenges as well:

• It's getting harder to maintain uniform procedures in an international environment where accounting standards are developing in different ways
• New regulations, such as the General Data Protection Regulation in Europe, demand increasingly detailed reporting – a necessary but time-consuming activity that can detract from core business activities
• US states, which have jurisdiction over the industry, must comply with new rules by the early 2020s following a recent agreement between Europe and the US to level the insurance playing field

Captives know new digital technologies can help address these challenges, but struggle to know which will address their specific issues, and how to scale them up.

But digital investments raise new issues. How can captives provide new services while maintaining the low-cost value proposition that distinguishes them? They recognize that digital tools and data science are revolutionizing business globally, but they fear that day-to-day-operations could suffer while they introduce innovations. And with historically low interest rates impacting their revenue, they're concerned about the cost of bringing in new technologies and automation.

Their dilemma: How to reap the potential that transformation offers in the face of these challenges?

The next chapter for global business services

For captives operating as a global business services (GBS) organization, focus has moved far beyond cost-cutting and the bundling together of process-based activities. Today's GBS can turn the data-rich middle office – the traditional home of functions such as risk, research, and compliance – into a strategic, value-creating hub that drives convergence (Figure 1).

The new middle-office GBS can also be the interface between the customer-facing front office and the admin-focused back office to create a smooth and integrated customer experience, or even merge some of the front, middle, and back office together to form new service models.

With the right approach, this new GBS can develop into a full-fledged center of excellence (CoE) – one that fosters collaboration, encourages teams to find ways to grow the business, and provides a test bed for new innovations and digital solutions. In short, a good GBS, designed to reinforce the business goals of the enterprise, can lead the transformation charge.