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Finding a good fit


A German delivery company is showing how captives can be structured to fund employee benefits in a way that provides policyholder entities with substantial savings and coverages that might not otherwise be available. Bill Fitzpatrick, vice president—risk benefits, corporate insurance and risk management for Bonn-based Deutsche Post World Net operates two captives that fund benefits for more than 125,000 employees throughout Europe and 80 countries outside the Continent. Deutsche Post acquired a majority stake in DHL Global in 2002 and the captive programs cover employees at Deutsche Post and DHL locations. Mr. Fitzpatrick, who joined the global delivery company last June after spending 16 years with American International Group Inc. as director multinational accounts in London, is considering expanding the use of the captives into areas such as voluntary benefits. He discussed how Deutsche Post uses the companies and why they are a good fit for the company's units throughout the world.

Q. How many captive insurance companies does Deutsche Post own?

A. We have six captives. For the employee benefits programs, there are two—DP Re in Luxembourg and Marias Falls in Bermuda, which is by far the largest captive. The other four were acquired when Deutsche Post bought companies.

Q. How large are the captives?

A. In Luxembourg, the benefits business we have is life, disability, accident and medical coverages in DP Re. It also provides some reinsurance for our captive in Bermuda. Gross premium is €13.6 million per year and that will exceed €15 million in 2007. It covers around 50,000 to 60,000 employees, pretty much everything on the Continent. That's 15 countries.

The Bermuda captive, Marias Falls, provides life, medical and disability and some accident coverage. Benefits premiums are up around €30 million per year. That one primarily covers everything outside of Europe—locations in 80-plus countries.

Q. How much do the local operations save by funding benefits through the captives as opposed to using the traditional market?

A. Twenty-five percent is the type of savings we see over the commercial market.

Q. Where does that saving come from?

A. From the removal of the brokerage commission, paying premiums in advance and eliminating the profit to insurance companies. In terms of benefits it brings to DHL entities, they receive the same or better cover at 20% to 25% less than would be purchased at the commercial level with service levels that meet or exceed the local standards. A win-win for all, I would say.

Q. Apart from cost savings, what are the reasons for operating a captive to fund benefits, as opposed to using the traditional market?

A. There are a handful of advantages that we see. We're coming in with a 25% saving to the local entities. We're also able to put in contractual conditions that normally would be excluded. Most local policies have a standard set of exclusions that may or may not fit the needs of the account being written. We can adjust these provisions to fit the needs of DPWN. For example, most life policies exclude a claim if the individual is not a fare-paying passenger. With the numerous planes that DHL has in the air at any given moment, this type of exclusion could result in the non-payment of a claim for a DHL employee trying to get from one location to another, but not actively on duty.

The captive can also consider the payment of a questionable claim that would normally be declined under the provisions of a contract written at the local level. If we decide to pay it, we can, even if it is outside the guise of the contract.

We can advise our local offices of their insurance costs for the year and they can budget appropriately. The first thing we do is come in and simplify administration; it is a very simple plan from an administrative standpoint.

Q. How are you considering expanding the captive? What new uses do you have in mind?

A. We are taking a real hard look at worksite benefits. We are starting to see those benefits on the increase and we are looking at different uses for our captives for worksite benefits. We also are looking at whether there is an opportunity for pension benefits in the captives. And we are wondering if there are opportunities, where we have customers who need coverage, to provide them with coverage.

We will continue to grow the programs. It's been a great deal for the DHL entities in terms of bringing cover to their workforce.