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Employers cut costs through benefits captives

Growing trend aided by reinstatement of fast-track approval process

Employers cut costs through benefits captives

BURLINGTON, Vt. — An integral part of the corporate culture of Sealed Air Corp. is to look for better ways of doing things, says Howard Edelstein , director of risk management in the packing goods manufacturer's Elmwood Park, New Jersey, office.

Using that philosophy, the company expanded its Vermont-based captive, Saddle Brook Insurance Co., Mr. Edelstein said.

The captive “has been a beneficial economical tool for the company. It works, and it works well,” he said.

Indeed, the success of Saddle Brook in funding property/casualty risks “helped to influence our corporate risk appetite,” Mr. Edelstein said.

It also prompted Sealed Air to shift benefits risks — in this case, life and accidental death and dismemberment coverage — to Saddle Brook, Mr. Edelstein noted, to avoid the pricing gyrations of the cyclical traditional market. Mr. Edelstein described the move to expand Saddle Brook's use last week at a session of the annual Vermont Captive Insurance Company conference in Burlington, Vermont.

Fellow panelist Peter Bandarenko, a senior consultant with Spring Consulting Group L.L.C. in Boston, which filed Sealed Air's application with the Labor Department, said captive benefits funding also can reduce “frictional costs,” eliminating the profit factor commercial insurers build into rates when they provide coverage for an employer's benefit risks.

A chart displayed by Mr. Bandarenko showed savings of 5% to 20% that for employers 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 also gives an employer greater ability to customize benefit plans' design, he said.

Aiding Sealed Air's move were the time savings from a rapid regulatory review process known as ExPro, reinstated recently by the U.S. Department of Labor, whose approval is needed for many types of captive benefit funding transactions.

Under ExPro, available to applicants who can show that similar transactions previously received approval, the entire process takes about two and a half months instead of the year typical in such reviews. ExPro is expected to fuel more interest in captive benefits funding, according to other experts who spoke at the VCIA meeting.

“ExPro is back and that will help” expand the use of captives to fund their parents' benefit risks, said VCIA President Richard Smith.

Meanwhile, experts see continuing growth in Vermont, the nation's largest captive domicile, which had 584 captives through July, with 14 being licensed this year, an increase from six a year earlier.

Captive experts cite such factors as veteran, but flexible, regulatory staff for the growth.

“Regulators understand the needs of captive owners. They are flexible in terms of regulation,” said Nancy Gray, regional managing director-Americas with Aon Risk Solutions in Burlington.

“It is intelligent regulation, not overbearing,” said Jeremy Brigham, a director with Towers Watson & Co. in Hartford, Connecticut.