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BURLINGTON, Vt. — More employers are expected to seek regulatory approval to fund employee benefit risks through their captive insurance companies as the advantages of the approach become better known, a captive expert says.
Through that approach, employers “are in the driver's seat in terms of managing costs,” said Peter Bandarenko, a senior consultant with Spring Consulting Group L.L.C. in Boston.
One advantage, said Mr. Bandarenko, who spoke Thursday at a Vermont Captive Insurance Association conference session, is reducing “frictional costs,” a reference to eliminating the profit factor commercial insurers build into rates when they — rather than a captive — provide coverage for an employer's benefit risks.
A chart displayed by Mr. Bandarenko showed cost savings ranging from 5% to 20% that employers can rack up through funding benefits through their captives compared with buying coverage in the commercial market. “These are the kind of cost savings clients are seeing,” he said.
In addition, funding benefits through a captive broadens the captive's book of business and gives an employer greater ability to customize benefit plans' design, he said.
Still, there are challenges to the approach, Mr. Bandarenko said, noting the teamwork required between corporate risk and employee benefit departments.
That cooperation “is key. That is Job. No. 1. All stakeholders have to be aligned at the beginning of the process,” he said.
Aiding this approach is the return of a regulatory review process known as ExPro, in which the U.S. Department of Labor, which has regulatory jurisdiction over using captives to fund employee benefits, will complete action on a benefits funding request in about 2½ months if certain conditions are met. Those conditions include employers showing that their approach is substantially similar to those the Labor Department approved earlier.
Using ExPro “makes it a lot faster,” said Brad Campbell, of counsel with law firm Drinker Biddle & Reath L.L.P. in Washington and a former assistant secretary in the Employee Benefits Security Administration.
Howard Edelstein, director of risk management in Elmwood Park, New Jersey, for packaging manufacturer Sealed Air Corp., said the success in using the company's Vermont-based captive to fund a wide range of property/casualty risks fueled corporate interest in expanding the captive to fund benefit risks.
There “is a desire in the company to look for better ways of doing things,” Mr. Edelstein said.
Earlier this year, using the ExPro approach, Sealed Air received Labor Department approval to fund life and accidental death and dismemberment benefits through its captive.
The Labor Department Wednesday gave final authorization to Sealed Air Corp. to fund several benefit risks through its Vermont captive insurance company.