Group captives are becoming increasingly appealing as a solution for many companies during this period of financial volatility and inflationary pressure, according to analysts at the Insurance Information Institute (Triple-I).
A new report by Triple-I notes that group captive insurance can be a source of value for certain firms, and can also offer greater financial flexibility and protection against losses for members.
A form of self-insurance for organizations with specific attributes, a group captive can help lower the costs and improve cash flow for certain risks, with the added benefit of returning unused loss funds and income to members through dividends.
Group captives have existed for decades, with each owner makes a modest initial capital contribution, and typically cover lines with more predictable losses, such as workers compensation, general liability, and automobile liability and physical damage.
Triple-I reports that group captives also tend to recruit safety-conscious companies with better-than-average loss experience, with membership often resulting in reduced premiums, as they are based off each member’s own five-year loss history.
This contrasts with commercial carriers, who base their premium on a number of factors including industry-wide loss experience.
Additionally, Triple-I suggests group captives can offer members greater control of insurance program costs, as well as oversight of claims handling and reporting, which can help to improve cash flow for certain risks, with the return of unused loss funds and investment income via dividends.
Commenting on the type of company that group captives are increasingly appealing to, Sandra Springer, SVP of Marketing for Captive Resources (CRI), summed up: “While they embrace the risk-reward trade-off, they’re not gamblers.”
“They are successful, financially stable, well-run companies that have confidence in their own abilities and dedication to controlling and managing risk,” she added. “They believe they will outperform actuarial projections, and a large percentage of them do.”
Triple-I also suggests that the group captive model can help to control spiraling litigation costs through careful claims monitoring and review, often through providing additional layers of support that improves claims adjusting effectiveness and efficiency.
“Given that members’ premiums are derived from their own loss history, this is yet another way that they are able to lower their premiums, proactively managing and controlling the losses that do occur,” the Triple-I report notes. “Group captives can provide a viable way to protect companies across several lines of casualty insurance. Their prominence is likely to grow as economic and litigation trends continue to increase costs.”