View source

Interest is growing in these programs as companies look to manage risk and hard market conditions persist.

For several years, we have been in the midst of a hard insurance market. As a result, insurance carriers continue to respond with steep price increases, dramatically larger deductibles and lower coverage limits. However, sophisticated insurance buyers are taking control of this situation by strategically utilizing group captive insurance companies.

While group captive insurance has been around for some time, we are seeing more and more companies interested in what this type of program has to offer. A group captive is an insurance company owned and controlled by unrelated organizations. Essentially, a group of companies band together with a desire to control their own insurance destiny through an alternative to traditional insurance. Coverage provided by group captives normally includes workers’ compensation, commercial general liability and automobile liability/physical damage due to the frequency and predictability of these types of claims.

So, what are the benefits of group captive insurance?

Ultimately, it provides companies with greater choice and control over their insurance costs — putting them in the drivers’ seat.

In a traditional insurance program, the full premium is given to the carrier, regardless of how few claims the insured files. In a group captive, a significant portion is invested — to the insureds’ benefit — where it accrues over time and can be used to pay claims under the organization’s control. The increased control also allows captive members to have greater participation in claims decisions, as opposed to the insurance company deciding for them.

Taking it a step further, if claims can be significantly controlled, captive members get their underwriting profits back in the form of a dividend. We’ve seen a growing trend where organizations leverage this dividend in innovative ways to solve business challenges and incentivize employee behaviors.

While discussing the benefits of a group captive, we would be remiss not to dive into what is needed in order to be successful.

When businesses embrace the concept of a group captive, they must be fully committed to operating as safely as possible to reap the rewards of the program. Captive members see the benefits of good loss performance, but also feel the pain when it is not so good since captive members are shareholders and are required to fund any anticipated claims. With this in mind, the captive forces the group of businesses to put an emphasis on the appropriate areas, such as safety, loss control and claims management.

There is a common misconception that a group captive can be an instant money-saver. The reality for most organizations is that their safety culture and commitment to upholding world-class safety standards is the X factor when it comes to realizing cost savings using group captive insurance.

That’s because a company’s safety programs and processes protect its bottom line and ensure steady and predictable claims performance. So, in general, good candidates for a group captive are usually entrepreneurial in nature with good loss histories and a strong commitment to a holistic safety culture.

In support of this initiative, an added perk of a group captive is the sharing of safety and risk management best practices amongst its members, referred to as Collective IQ. The saying, “the sum is stronger than the individual parts,” applies here.

The same goes for the saying “more risk equals more reward.” So, if you’re willing to give up the standard confines of traditional insurance programs for a more innovative approach in a group captive model, while also prioritizing the internal initiatives that will allow it to have a positive impact, we’d argue it’s worth the risk.