Deyna Feng, director of captive programs at Cummins, discusses the role their captive plays in supporting the business on a global basis, outlining the captive philosophy and the virtues of data.
Cummins’ captive, Dynamo Insurance Company Inc. and was incorporated in Vermont in 2011.
Deyna Feng: “Our reason for setting up the captive was to support business needs. We started with three P&C lines and then some global and regional lines. From there, we have continued adding more lines into the captive gradually and we now have 10 business lines. Based on current market conditions and how we think about our internal strategy moving forward, we are always looking to further expand the use of our captive.
We have also extended our captive to cover our International Employee Benefits Programme, which we cover over 60 countries in all lines of employee benefits including life, disability, medical, dental and more. It’s pretty comprehensive programme now and we are always keen to utilise the captive to support our global risk insurance strategy and to introduce further concepts to our senior leadership.
We mainly use our service providers to make all the arrangements and they utilise our captive quite actively. While many captives may be set up then not really change much over time, with our captive, we continually meet with different business leaders, stakeholders and regional managers try to understand what business needs they may have and offer up the captive as a potential alternative solution to their local commercial arrangement or to be utilised in combination with their local setup.
In evaluating the captive there are several different levels including board meetings and review meetings to address different financial aspects such as investment or tax. In addition to these, if we have any new business needs, we will review it separately and then communicate with our board members about what’s needed for the captive, what’s needed from business and the how we should make the arrangement and seek their approval and support. We have a pretty robust procedure how they started the new business case and then the how we provide the feasibility study by different lines until we can reach a conclusion about what can be done, either by utilising the captive or by suggesting an alternative solution at a local level.”
Beyond the strength in continually evaluating how their captive can support evolving needs, Feng believes corporate governance is another key strength of the captive.
“It took some time for our leadership to understand what a captive was and how it could be utilised. However, once they understood it, they provided a huge amount of support and since then we have been reliant on our cross-functional team leaders to guide us on how we should do business, and how we should monitor and manage the captive to ensure it is compliant.
Our governance structure includes various committees under the board of directors’ governance. We also create an enterprise risk management handbook which aims to list all policy procedures relating to our captive’s management and operations.”
The ERM handbook aims to determine a universal approach to the captive.
“We don’t differentiate from global to local because our ERM handbook is tailor-made for captives. We have tried to take a top down approach to all the different aspects of the captive operation.
Looking at the financial aspect, for instance, we meet with our accounting team and then set up an approach for the cross-functional team arrangement because they have lots of internal structure we need to satisfy. And we clearly document the approaches we take for a given area or geographic location to understand over time whether the approach chosen is the most suitable.”
Data collection is viewed as an integral part of the captive.
“Data collection is important because we have a global and regional programme. When we market to commercial insurers and reinsurers, we want to make sure they understand our company culture and our data. We view risk exposure and claims data as the most important elements, and by now we have accumulated good clean data for our own profile and not necessarily just the market profile.
We share the data we collect with our internal stakeholders and believe this helps us to do better management arrangement internally. In the case of US auto liability for example, we share the data with our fleet management, security and safety teams so they all understand what has been happening on the claims side for this line. This data helps these other teams to make decisions about how they want to fleet globally and in the US. Sharing data in this way helps contribute to our programme because that can help reduce large claims or frequency. The transparency of data sharing also enables cross-functional team leaders to better understand how the programme has been managed, which will help to reduce future claims.”
In 2020, Cummins launched their International Employee Benefits Programme which utilises their captive.
“With a large global footprint, it has taken time for our internal leadership team to understand why we need to utilise a captive to really sponsor or make the arrangement for employee benefits. We definitely spent some amount of time internally to communicate at different levels to make sure that no matter what team and in what region, they understood what captive insurance means for them and how they could utilise captive employee benefits programmes to support their future strategy.
We started initial consultation in 2015 and the EB programme finally launched on 1 Jan 2020. Moving forward we can start to streamline the internal procedures, renewal process and future data support. Also as claims data on the medical side builds up, we will be to support individuals more specifically in their local regions once trends have been identified. This data will also help manage local insurance programmes because loss ratio will impact the local premium.”
Over the years, some of the captive’s lines have come and gone depending on market conditions.
“At a certain point we added cargo but started to see some shocking claims information which made us realise it was important to manage this area with a different approach. After a few years in the captive, we started seeing a good trend and received a good market quote so went back to the market and bought it through a commercial arrangement. Programmes like this come into the captive when needed and can go when a better opportunity is seen elsewhere. But that doesn’t mean that we won’t take it back in future. In addition to that, we are also trying to get to a more strategic level on the global holistic approach around how we buy insurance. Last year we started our risk insurance strategy which began with a risk appetite evaluation. This has helped us to decide how much risk we want to keep risk in the company and how much we want to utilise our captive as part of our global strategy.
At this point in time, we have built up a good level of financial strength and have a good picture of our risk appetite, meaning we are in a position to increase the risk appetite and keep more lines and retain more risk in the captive. We have pretty strong confidence in how the captive can support business needs and place more lines and make more layers within the captive.”
Moving forward Cummins will continue looking at how they can evolve their programme and use their captive to support needs on a global basis.
“We will definitely continue changing our programme, including our global programme, along with how we look at the captive and how we utilise it. We also want to continue evolving our governance programme and structure with a view to making some internal changes so that we can even more efficiently seek support and guidance from our senior leadership team.”