← The Edge of Risk Podcast by IRMI
The Edge of Risk Podcast by IRMI
Using Captive Insurance to Support Risk Strategy and Capital Deployment
00:24:33
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- [00:00]
A
Foreign. Welcome to the Edge of Risk podcast. I'm your host, Joel Appebon, the chief content officer of ERMI and captive.com and on today's podcast, we're joined by Sherry Baker, vice president of Enterprise Risk management at Ilitch Companies, where she leads enterprise risk and oversees Tenda, the organization's captive insurer. Tenda, established in 2020, supports a diverse portfolio of businesses with a range of coverages including health, property and casualty, and executive life, I believe. Sherry brings extensive risk management and captive insurance strategy experience with her prior leadership roles at Stellantis, Blue Cross, Blue Shield of Michigan, and Marshall. She serves as a board member of the Captive Insurance Companies association and is a leader with the very important movement within SIKA Amplify Women Initiative. Sheri, welcome to the podcast.
- [01:07]
B
Hi, Joel. Thanks so much for having me.
- [01:09]
A
Yeah, I'm excited to have you here and I'm excited to hit you with a few of these questions. You've had a really interesting career and spanning automotive, healthcare, brokerage, and now you're leading enterprise risk at Ilitch. So I'd love it if you could walk our listeners through how you came to be in Captives and what drew you into this role, overseeing both Enterprise Risks and Captives at Ilitch.
- [01:35]
B
I'd be happy to. It's interesting. So some people are very intentional, obviously, in their careers, and God bless them if they have that linear path throughout every season of their career. Mine was a bit of a surprise, like many of us in this industry. So I happened to move into my first home, and my neighbor worked for General Motors in their risk management department. And that was my first introduction, introduced me to Marsh. I started my career there with them. And so 25 years later, I'm here with the Ilitch Company. So in between there. So I was with Marsh for several years, for 14 years. And that's where my first exposure to Captives was. Just learning what they are, how they can benefit the organization. Not intimately involved in their Captives at gm and then moving into Blue Cross and there was fortunate enough to participate in standing up their Captive. So being there from day one, which was very exciting, it's very interesting. And it's a different perspective than jumping into a fully formed Captive. Right. Starting it from the ground up.
- [02:32]
A
Absolutely.
- [02:33]
B
And so that's probably been from there to Stellantis, which had a fully formed, extremely robust captive, and then onto Illich companies. And one of the things that drew me to the Ilitch companies is the diverse risk profile of the enterprise. Right. And knowing that, you know, being in sports and Entertainment and with Little Caesar's pizza, with food service and the various other entertainment outside of sports, other entertainment venues that they have and then the impact that they've had on Southeast Michigan in particular, really globally. But southeast Michigan and in Detroit was extremely appealing to me. It's an iconic brand. I've worked for private companies before, but not family owned companies before, so that was also very interesting. And once we started talking about what they were trying to do with their captive, how they were trying to really use it strategically within the organization and expand its use, that's really what kind of drew me in. Because captives are always, I've always said this, they're the most fun part of my job. I like risk management, I like insurance, which I'm sure sounds strange to others, but anyone listening to this podcast should, you know, can probably relate to that. But the captive piece of it, it's just, it's so creative and unique. I was really looking forward to seeing what they were doing today and then how we could expand its use.
- [03:49]
A
Yeah, no, that's awesome and super cool. And I am a, I was an enterprise source manager. I'm a super nerd. I love it and I love that you're excited about it too. And it is so interesting. You know, ATTENDA is a relatively new captive. Right. Established in 2020, but already playing a central role in, in your organization, which is a very interesting organization in and of itself. So I'd love it if you could give our listeners an overview of tenda, how it's structured, where it's domiciled, and what role it plays within Illich's broader risk strategy.
- [04:27]
B
Absolutely. So Tenda, we actually have two different Tenda entities. One is domiciled in Michigan and one is domiciled in Cayman. And it started with a need for the solution that it offered was health plan benefits to illage family members. And really the thought was, well, what would we do with a captive? We can't just have a captive for one thing. So let's think about really what makes sense. And like a lot of other captives, we started looking at the P and C lines and started stepping into the captive space by writing deductible buy down policies within the captive. And then we expanded from there. So we have some health plan benefits, we have some medical stop loss in there. We do have the executive life that you mentioned earlier, which I think is a great opportunity for those who are in a position to offer that to their employees. That might be something they want to look at placing in their captive. So the Way we look at it today is not dissimilar to anyone else's organization, which is how. How can we best utilize capital within the organization? Where can we take risk in house that we feel that we're managing really well instead of giving that money to the commercial market and sending it out the door? What can we keep internally? What are our risk mitigation factors and processes and procedures that we have in place where we feel we're really strong? Because no one knows your risk better than you. So you can try to tell that story to the commercial market. Sometimes it's heard, and by heard, I mean metaphorically heard. Sometimes it's not, you know, it's not. So when you feel like you can really manage your risk well and take that capital and deploy it internally. So in that way, it's very similar. And I would say here our executive leadership is really open and entrepreneurial about how we utilize the captive. So very open to some interesting ideas. Is there something we could do maybe at some point with the sports teams that we're not doing today outside of the traditional P and C or to enhance the traditional pnc? So one thing I will mention too, because I think sometimes it's lost in these conversations, is we are not strictly writing insurance through the captive. We partner with the commercial carriers out there to write excess or even write the primary for those deductible buy downs that we talked about. And then we have reinsurer partners, fronting partners, you know, all of these entities. So. So we're not on an island here. We really have been able to take advantage of the expertise offered by the commercial market and then also the capacity as we continue to grow.
- [06:53]
A
Yeah, so many people don't have the right perspective, I think, on captives from the outside. Like, you know, you're really integrating in with the commercial market and then using it for deductible buy downs. I mean, the breadth of which you can use a captive is amazing to me. And it takes some really smart people to help you figure it out. And, you know, you have a breadth of coverages, Health, property, casualty and executive life, like we were talking about. How do you think about structuring captives across multiple lines like that? Maybe help us with. What advantages does that give you compared to just relying on the traditional market?
- [07:35]
B
Pausing for a moment. So this is the first company that I've worked for that has had multiple captives where I've been responsible for placing the coverage. So GM did have that as well. So previously in prior life, we had one captive in the US that we wrote all lines in. And actually, I should make a correction. At Stellantis, there were multiple captives, but my responsibility was only with the one that was domiciled in the U.S. so here we have these two different companies, right? We have one in Michigan, we have one in Cayman. So really looking strategically at what our license allows us to do, right? That's different. Depending on which domicile you're in, where are you located, where are most of your operations that you're insuring, and then which entity is best positioned to write that business? I think I missed part of your question.
- [08:23]
A
Oh, no problem. It's. I mean, I think we were talking about the breadths of coverages, right? You have health, property, casualty. We talked about executive life. And it was like, how do you think about structuring captives across multiple lines like that? And what advantages does it give you compared relying on the traditional market?
- [08:43]
B
So I think that when we're talking about the advantages of the captive over the traditional market, regardless of what line we're writing, it's kind of similar to what I stated previously, which is, and you'll hear this in any class or you'll read this in any captive 101 articles and things which is retaining your investment income, retaining your underwriting profits, should you have a profit and not every year is going to be super profitable, you're going to have to pay losses. You are an insurance company. You should be filing claims and paying losses. So I think it's very similar to how we place things in the commercial market. It's where do we want to deploy capital? Where is it best deployed? So if we want to keep something internally, where we keep and earn that investment income and retain those underwriting profits, and then how do we deploy that capital? Do we keep it in the captive, or do we maybe pay it out as a dividend and use those funds to then leverage our position in the commercial market? So it's really, from my perspective, it's that holistic look at strategic utilization of your capital. And you need to have those partners that you mentioned. You need to have actuaries, your legal staff, you need to have good relationships with your regulators. And also I think those different domiciles will inform your decisions based on the licensure and how friendly those domiciles are to what you're trying to accomplish. So, for example, we have a management liability policy that we wrote recently in the Michigan Captive, and we did look at, okay, which captive does it make sense to write this in and how does it coordinate with the commercial market? And so we ultimately chose Michigan because there were some questions about DNO coverage, for example, in the Cayman Islands. And so rather than have any concerns about how it might be looked at by the captive regulator and understanding what their concerns are, it was specifically related to side A, which is boring and we probably won't go into that in this. So it's not boring to those directors, I'll tell you that. But. But it just seemed to be the philosophy for the Michigan domicile was different than that of Cayman. You're going to find that across the country and across the globe. And so that plays into all of your decisions that you're going to make.
- [10:52]
A
Absolutely. And also the appetite of like the traditional market. Right. With some of the exposures that you have, it just might make sense that this domicile may be willing to talk to you about how you could structure that. Right.
- [11:06]
B
So 100%. Yes. It's interesting too, because the appetite of the commercial market is going to lend not just to the amount that you put in the captive, but where you play in the tower. So you might write a primary policy or deductible buy down in your captive, or you might provide an excess layer, or what we refer to as a corridor, where you have, it's technically another self insured retention above your primary layer. But you can fund those losses through your captive, or maybe you take a quota share. It really does depend on what's happening in the commercial market. And then again, how are you managing your risks so that you manage your assets of the captive?
- [11:42]
A
Yeah, people who say insurance isn't interesting, they just don't know about all this clearly, right, Sherry?
- [11:48]
B
Clearly they don't.
- [11:49]
A
All right, so you mentioned advancing a more integrated enterprise wide risk strategy, which is something that we're hearing more and more across the industry. How does the Captive support that integration across such a diverse set of businesses, from sports teams to restaurant operations?
- [12:10]
B
I think the key is really relationship building internally. So my position is a new position in this company. But for those who have been in enterprise risk management for some time, and even just traditional operational risk management, it's all about building relationships internally for what we're discussing right now and making sure people understand who you are, what you're here to do, how you're here to support them, ensuring they understand that you're not the department of. No, we're not here to tell you you can't do something. We're here to tell you how to maybe manage that risk associated with those business opportunities that you want to take Advantage of. And so I think we're taking an opportunity with this new role to look at not just insurable, but potentially to date, uninsured risks. And I find that once you establish these relationships, people know that you're being transparent. They know they can trust what you have to say. You give them the data that they request, support the position that you're presenting to them in a way that they can understand and understanding also what's important to them. I think that's the key in this. What is important to you in order to help you accomplish your goals. What can I do to help you? And interestingly enough, we're talking about some new coverages, some creative solutions for things. And I was talking to general counsel in one organization within the enterprise. They have conversations with their counterparts across the organization, and now I'm receiving inquiries from their partners and their colleagues as well. And that's really what you want. You don't want to always have to be the one to start the conversation. You want to start to say again, this is who we are. This is how we're here to help you. This is how we're helping you today. So that those people then can come to you, those business leaders across the enterprise can come to you with their questions, say, hey, we have this new venture. Is there some way the Captive can help us control our costs or mitigate our risk?
- [14:00]
A
Right there. That's an amazing accomplishment, Sherry, because, you know, if you just get someone to come and say, hey, I want to learn more about insurance and how you can help me, that's really great because usually it's you knocking at the door and then pretending they're not home. So.
- [14:14]
B
Absolutely, absolutely.
- [14:19]
A
So I witnessed, I think, at sika, you guys being recognized with the outstanding Captive award, which I think is a very significant achievement. And I'm just kind of wondering if you could share with our listeners, what do you think sets Tenda apart and what lessons can organizations take from your approach? So maybe next year they're on the platform, right?
- [14:43]
B
That's a great question. And I will give credit where credit is due. That was before I joined the organization. So kudos to the team that put the captives together and really set an incredibly solid foundation for us to move forward. I think one of the things that sets us apart, we talked about some of the traditional things, deductible buy downs. I think the other thing that sets us apart is really the entrepreneurial nature that we bring to the Captive. I don't know if that's a result of the ownership structure of the enterprise, being entrepreneurial, if they've just done a great job of bringing leadership in across the organization, that also has that same spirit. I think that's part of it, the culture of the enterprise. So being entrepreneurial, really being creative, maybe looking at those risks that are. Have traditionally not been insured and being open to, well, what other solutions can we bring? And also I would say that health plan benefits, I know health plan benefits are placed with other captives. Sometimes it's solely, you know, the line that's in the captive, depending on how it's structured. So that's not necessarily new, but I think how we do it is new and interesting and solving a need that, that we had for individuals in our space that were currently or at the time uninsured. So that was a big piece of it. I think also being open to. What can we do with different licenses? Do we look at different licenses down the road? Do we look at converting our captive into a different structure? For example, in Cayman, do we look at having branch captives across the US and that all comes back to, I think, that entrepreneurial and creative position that we are in today.
- [16:18]
A
Yeah, well, maybe changing gears here a little bit. But you're also very active in the industry through CKA and your leadership with Amplify Women initiative. And I was wondering if you could share more about your involvement there and why initiatives like Amplify Women are important for the future of the captive insurance industry.
- [16:45]
B
I would love to. This is also one of. One of the favorite parts of my job. So. So one of the things I just, as a quick aside, what I try to tell people when we're. When I really, with all my relationships, but particularly like in mentoring situations, when I'm talking to the next gen that are coming into this industry is raise your hand, you know, volunteer. And that's how I got started with Sika. And I talk about Sika and how great of an organization I believe it is and what it brings to the industry at large. And I don't say that because I'm on the board. I'm on the board because I believe that.
- [17:14]
A
Ah, okay.
- [17:15]
B
I believe in the mission and Amplify Women is it holds a special place in my heart. I would say that empirical evidence shows that a diverse workforce improves your bottom line. Right. People want to see diversity in organizations that they're working with. They want to see themselves in organizations that they work with. And so I think it's extremely important. So when we talk about Amplify Women, I recently held the position of the chair, and now I'm in the immediate past chair physician for Amplify Women committee for the board. And what we try to do is we try to do just that. Amplify women in our industry. Open them up for opportunities to speak on panels, to write papers, to write articles, get them exposure within the industry, give them educational opportunities and networking opportunities as well. And I think that just furthers every organization. It's not just a win for those individual women, it's also a win for the enterprises that they work in for the industry as a whole. Because again, diverse thought brings diverse solutions. And that's a win, win for everybody.
- [18:19]
A
Awesome. I think that's super cool. I want to go to, like, this futuristic kind of question that we tend to bring to the end of each of the Edge of Risk podcast episodes. So looking ahead, how should companies be rethinking captives to handle more interconnected risks? And what's one move listeners could take in the next 12 months? I feel like more risk is there's more interconnectivity between risks today than ever before. So help us understand that.
- [18:52]
B
That's a really great question.
- [18:55]
A
Thank you, Sherry.
- [18:57]
B
And I'm going to have to listen to the rest of the podcast and see how everybody answers it. But I would say looking forward. I'm going to jump to that part of your question, looking forward in the next 12 months. I think it's important once you have an established captive. So maybe if you're not 12 or 18 or even 24 months down the road from creating your captive, but maybe 18 beyond, we'll see maybe 24 and beyond. Really take a look at your captive with fresh eyes. Maybe bring in a different consultant to do like a mini feasibility study. Are we utilizing our captive to the fullest, to its fullest potential today? And in those conversations, talk about emerging risks in your entity, you know, in your industry in particular, and see if there's some way you can help finance those risks through the captive, you know, strategically and efficiently through the captive. I think taking a fresh look at what you're doing, making sure it still makes sense. I have seen people pull coverages out of their captive and go back to the commercial market when it becomes extremely affordable in the commercial market and they want to deploy capital within their captive differently. I think also what we sometimes do from a risk management perspective, we're kind of stuck in looking at, okay, here's my cyber risk, and here's my property risk, and here's my general liability risk. Looking at these silos and you Know, looking at each individual renewal separately without thinking about how you can maybe deploy capital differently. You know, does it really make sense to purchase a $200 million Cyber Tower from the commercial market? Could you purchase a smaller tower and deploy that saved capital somewhere else so that you're increasing your tower somewhere else here? Or take that capital, as we've been talking about, and put it into your captive and deploy it elsewhere? It really depends on what's happening in your industry. Your own personal loss history, because you know yours might not be indicative of what's happening with your competitors out there and your colleagues out there. And that's again, where the captive comes into play. Because you have a commercial market out here who's looking at everyone's risk. And that's what insurance is. Right? Spreading that risk. But if you know that your loss history is not on par, it's better than the commercial market and your peers. Bet on yourself. Pull that money into your captive and see what you can do with your capitalization, the captive, financing net risk and then leveraging that with your commercial partners to potentially reduce your costs that are levied by the commercial market?
- [21:25]
A
Yeah. I'm going to throw one more at you just because I really just loved your response because this kind of takes me back to the beginning of our conversation in a way. I think you said, nobody knows your risk like you, right? So why not bet on yourself? And I'm just wondering, when you bet on yourself, when you take those chances, does it inspire your organization to be safer, to prevent more risk? Because I feel like when you do it in the captive and you're taking these chances to deploy risk here, or I think I know this, I feel like you're betting on yourself. And I'm just wondering, do you feel like it inspires your management, your leadership, the people that you're knocking on their door to be safer, to prevent risks?
- [22:13]
B
I believe that 100%, because you are taking that risk in house, and it is going to affect their bottom line and their budgets. So it's not just all of a sudden it's paid by the captive. They're gonna. There's gonna be some risk sharing, whether it's through a premium or a true deductible or retention. So absolutely, it's gonna inspire, first of all, you hope that putting it into your captive, when you make that decision, it's because those risk mitigation procedures are in place and policies are in place. But absolutely, when they realize, hey, I can really affect my bottom line by, you know, as opposed to Having a guaranteed cost program that goes out the door, you know, like I pay a premium, I have no volatility, you know, in what I'm paying. And so I know I'm going to get a check if there's a loss or if there's an injury. But here where you're really. And there are other things, really relying on your own mitigation procedures in order to control your costs, there are other things that you can do. You could through your captive, you could reward those really safe departments. You can utilize surplus capital to implement new risk management strategies across the organization. You can provide loans which might be utilized by the enterprise to invest in risk mitigation procedures. There's a lot of benefits of doing that. And again, that's that surplus capital that you've built up in your captive as a result of having some good policies and procedures in place, earning your investment income, retaining those underwriting profits that you can then redeploy.
- [23:41]
A
Yeah, you know, I love that, you know, it's not only redeployed, but it's also save safety. And I love that it inspires that. And I hope people listening kind of get that's another advantage of captives. So as we conclude today's episode, I just really want to extend a special thank you to our guest, Sherry Baker of Ilitch Companies, for sharing her insights and wisdom in the industry. And if you'd like to learn more about captive insurance and emerging risk management strategies or how to make your captive better, visit captive.com for free information on how to make your captive better or this industry better. So for now, thanks for listening.
- [24:26]
B
Sam.