The Benefits of Captive Insurance: A Strategic Shift for Businesses

The growing captive market is evidence that many organizations are leaving the traditional insurance marketplace for both Property & Casualty (P&C) and Employee Benefits (EB) programs, but why? This article examines how ownership in a captive can help benefit a business.

Property & Casualty

According to Dan Molyneaux, Agency President at AssuredPartners, there are several important reasons for captive expansion in the P&C market:

• Captives are an efficient mechanism for managing risk and reducing expenses. This is especially true for companies that consistently make money for insurance companies. Each time a “best of the best” company leaves the traditional marketplace for a captive strategy, the “traditional” marketplace gets incrementally less profitable. This transition leaves well-run companies to compete with those with less desirable safety records, a comparison that can negatively affect their insurance costs over time.
• Unbundling: The unbundling of services gives a captive member more choices regarding the strategic partners with whom they work. This flexibility means risk control, claims advocacy, actuarial, reinsurance, and tax advice can be obtained through a provider with the most equitable cost and strongest services. This can translate into a return on investment (ROI) for captive members. Unbundling of Profit from traditional insurers means that the dollars that aren’t spent on claims flow back to the captive member.
• More Control over claim management keeps more claims within the self-funded layer, which, in the end, is best for the captive member. It also allows a captive member to manage claims according to their philosophical beliefs. For example, a company can much more easily fight a claim – even if it will cost them money – if they feel it will prevent more claims of that type from happening.
• A captive member can leverage the relationships a captive provides to network with other like-minded businesses. Imagine being in a program with 300 or 400 companies (large captive) or even a smaller captive with 15 to 20 companies that share best practices. The synergy of encouraging better risk management strategies leads to many good ideas that spark discussions about even better ideas.

“These four reasons provide a strong rationale that captives are a valid financial management strategy for the right company,” says Molyneaux. He adds, “In my 27 years working with captives, including about 167 renewals for 16 clients, I’ve gone to the traditional marketplace only three times for pricing.”

Employee Benefits

“Growth in EB captives can be attributed to their inherent properties that help control a company’s medical spend,” states Geoff Christian, MBA, CWCC, EB Captives Leader at AssuredPartners. These properties include:

• The flexibility afforded by EB captives addresses the diverse needs of an organization’s workforce. Tailoring benefits offerings to these specific needs provides more control that can help reduce costs.
• Data analytics can pinpoint the best outcomes of initiatives designed to encourage employee engagement and drive care where it is best for employees and, ultimately, a company’s bottom line.
• Captive membership also helps control fixed costs by leveraging collective group purchasing of reinsurance at more favorable rates and implementing targeted solutions to lower claim expenses.
• Through the Keenan Pharmacy Coalition, the prescription drug purchasing program offers self-funded groups access to discounted pricing through group purchasing.
• Encouraging employees to use providers with better outcomes, while there might be a higher initial cost, can lead to savings in the long run.

Christian concludes, “EB captives are a good, cost-saving alternative offering to conventional coverage for those business leaders who understand self-funding programs and take a long-term approach to their insurance program.”

Other Alternative Marketplace Strategies

Captives aren’t the only alternative insurance strategy. Other programs exist to address specific pain points business leaders face.

For example, AssuredPartners has developed the following programs to alleviate pressures companies in certain industries face:

• Foxen Tenant Liability: Manages every aspect of renters insurance compliance, creating efficiency for property managers
• Punitive Damages: Critical coverage options for clients facing punitive damages claims
• Rentistry (CA Tenancy Credit Reporting Bill AB 2747): Effective rent collection tool that promotes positive social impact (ESG)
• Virtual Captives: A company pays an annual premium for the risk of owning claims. Part of the risk stays with the policyholder but reduces the effects of major losses. Benefits include no need for equity capital, cost transparency, good for difficult or uninsurable risks, and multi-line coverages.

Captives: Why Not?

Captive ownership puts business leaders and their trusted insurance advisor on the same side of the negotiating table. For businesses that are open to long-term strategies and understand risk for reward in their insurance program, alternative programs have much to offer, including more control and return on investment and networking with other entrepreneurial company leaders.

AssuredPartners’ Captives has the necessary expertise, relationships, and resources to help you and your business make the best choices for your insurance needs.