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Benefits captives trend led by large, well-known companies

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BOCA RATON, Fla. — Large, well-known companies say they use captive insurers to reduce the cost of benefits for employees and retirees, to better analyze what drives claims and to increase flexibility in the benefits they offer.

And while the number of captive insurers currently funding benefit risks is small at 70 to 80, Mark Cook, a senior consultant at Towers Watson & Co.'s international consulting group in London, said interest in the alternative to traditional insurance is growing.

“There is a lot going on,” Mr. Cook said during the World Captive Forum earlier this month in Boca Raton, Florida.

Employers including Adidas A.G., The Coca-Cola Co. and Deutsche Post DHL said they use captives for several reasons.

Bill Fitzpatrick, London-based vice president of corporate risk benefits and insurance at Deutsche Post, which has used a captive to fund a wide range of benefits including disability, life and medical since 1996, said the approach has made it easier for the German-based package delivery company to collect and analyze health claims information.

“It is difficult to compare data by country if you use different insurers in different countries,” he said. “We want claims information in 'real time' as much as possible.”

“You can be more flexible in terms of plan design” by using captive funding, said Heiko Ditzel, senior insurance manager at Adidas, the German-based sporting goods manufacturer that funds several benefit risks, including medical, through its captive.

Funding via a captive ensures that Coca-Cola pays the “real cost of providing benefits” rather than a premium to a commercial insurer” that includes a profit for the insurer, said Stacy Apter, the global beverage maker's director of global benefits financing and asset management in Atlanta.

Among other things, Coca-Cola uses its captive to fund international life, disability and medical benefits. In 2013, Coca-Cola also received U.S. Labor Department authorization through an individual exemption to fund accidental death and dismemberment coverage.

Such arrangements generally are considered prohibited transactions under the Employee Retirement Income Security Act. However, employers can seek permission from the Labor Department for those transactions.

Winning Labor Department approval “is an additional hurdle for U.S. companies,” said Nathan Pavlik, a Towers Watson international consultant in Chicago.

However, employers can seek individual exemptions, as Coca-Cola successfully did, from the Labor Department for those transactions.

In addition, the Labor Department recently reinstated a more rapid regulatory review process — known as ExPro — for captive benefit funding proposals.

Earlier this year, Austin, Minnesota-based meat packer Hormel Foods Corp. and Charlotte, North Carolina-based Sealed Air Corp. became the first companies to seek an ExPro exemption since 2012, when the Labor Department temporarily suspended the use of ExPro.

Captive managers say other employers are expected to quickly follow suit if the Labor Department approves the proposals by Hormel and Sealed Air, decisions that are expected sometime in March.