When Bob Madden with Lawley Service Inc. first presented the idea of stop-loss captives to fellow brokers at a 2010 industry conference, it was largely ignored. Now, however, it is piquing the interest of more brokers and stop-loss carriers.
The rise of group captives comes as more employers seek creative ways to hedge their risk and finance healthcare products outside of traditional, fully-insured plans. This is particularly true given cost pressures related to compliance with the Affordable Care Act, explains Art Grutt Jr., an insurance agent and managing partner with Cambridge Insurance.
A captive program is essentially layered on top of self-insurance, providing a cost-containment tool that Grutt says should be on the radar of brokers and advisers. And with the appeal of self-insurance trickling down to small and midsize businesses, he considers group captives an increasingly viable strategy. The common denominator between captives and self-insurance is a quest for greater cost control, and in most cases, the aim is to supplement coverages and increase deductibles.
There are several types of group captive programs. While a medical stop-loss or workers’ comp captive manages the cost of commercial insurance, for instance, an enterprise risk captive generally addresses uninsured risks or gaps in programs pertaining to business interruptions.
For full-service agencies, Grutt says the captive strategy is broadly applicable, but medical stop-loss side may be more relevant for producers than workers’ comp or business interruptions, given the current business and political climate.
Captives still don’t broadly resonate in certain markets, such as HMO-saturated Southern California, and there’s little interest in self-insured business. But “that’s where we are heading with some of our industry segments,” asserts LBL Group benefits adviser Peter Freska.
A case in point
One example involves a private school captive run by Borislow Associates, which like Freska’s firm, is a United Benefit Advisors partner. “We manage benefits for private schools, so we are looking at pulling that captive into the California marketplace, even though it’s Massachusetts-based right now,” Freska explains.
Quote"Hopefully they’re going to end up performing much better over time than they would with a standard, fully-insured plan and a 10% to 15% renewal increase every year.”
Freska’s private-school clients “will benefit from this style of insurance because they’ll get more data,” he says. “We’ll be able to manage things with them and, in the long run, they will save money.”
While a group of 100 employees probably isn’t the best fit for a self-funded plan, Freska says that pooling them with a group captive that has 5,000 employees will help spread the risk. “Hopefully,” he adds, “they’re going to end up performing much better over time than they would with a standard, fully-insured plan and a 10% to 15% renewal increase every year.”
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