Captives Helping Companies Insure Risks In New Ways
In a number of interviews at the Vermont Captive Insurance Association annual conference last month with insurers and brokers by insurance credit rating organization A.M. Best one common thread was notable: Captives are helping companies in new ways to address and manage risk. A captive insurance arrangement is basically an insurance company owned and controlled by its insureds. As owners, the insureds are the principal beneficiaries of the underwriting profits and investment income. Captives can be organized in a variety of ways to accommodate the owners’ specific risk tolerance.
Some of what we’re seeing in new captive applications, for example, includes companies using them to insure supply chain risks (business interruption exposures), political risks, and employee benefits. In addition, captives are being looked at to help hospitals and healthcare providers manage a changing risk landscape as a result of the Patient Protection and Affordable Care Act.
For example, in the wake of Affordable Care Act and its changes, hospitals and healthcare providers are employing physicians and merging with physician groups at ever increasing percentages. Many of these existing physicians when seeking employment with hospitals and healthcare facilities face the issue of what to do with their prior acts or tail liability exposure (professional liability). Those organizations that have an existing captive can choose to allow these individual physicians to buy out their tail exposure. Other hospitals, groups and/or clinics are considering the use of “risk-sharing” or increased “risk-sharing” as an option. “Risk sharing” is a method by which a captive acts as a small reinsurer to the larger entity. Typically, an insurer or reinsurance company can, and often will, act as the primary entity in this type of arrangement. Under certain circumstances, the industry will accept “ceding” of part of the premiums and losses from a captive in exchange for a portion of the premiums and losses. The theory is that this transfer or sharing of risk can provide balance sheet relief for the captive and allow for further growth or financial relief. In some cases the entity can even issue policies directly, handle claims in a variety of capacities, and assist in risk management initiatives.
Caitlin-Morgan offers a number of captive insurance solutions and can customize a captive arrangement that is right for your clients. Please give us a call at 877.226.1027 to learn more about how we can help your insureds manage their risks.
Sources: A.M. Best, Mondaq