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Smaller firms turning to captives


Captive insurance companies are performing a new role with a new group of players.

Utilized for decades by larger employers to cover their property/casualty exposures, small and midsize employers are turning to captives to fund a portion of their health care benefit risks.

“This is the newest frontier,” said George O'Donnell, a senior vp with Aon Consulting in Somerset, N.J.

“The potential here is huge,” said Dick Goff, a managing member with captive manager Taft Cos. L.L.C. in Towson, Md.

Smaller employers' health care benefits captive funding is taking a variety of directions. In some cases, small employers, with the help of third-party claims administrators or benefit consultants, are joining forces to set up their own captives or using a cell in an established captive to cover risk above a self-insured retention.

In other cases, small- and medium-size employers—typically defined as firms with between 50 and 500 employees—are securing coverage in captives owned by TPAs or trade associations to which they belong.

“A variety of models are being used,” said Karin Landry, a managing principal with Spring Consulting L.L.C. in Boston.

Regardless of the approach, small employers banding together to fund health care benefits risks are so doing with the singular purpose of saving money.

By boosting retentions and pooling risks in captives with other employers—who typically agree to put in wellness, disease management and other programs to lower claims costs—small employers hope to keep increases in health insurance costs more in check.

“Captives can be an excellent solution” to slow increases in costs, Ms. Landry said.

In addition, by pooling their risks in a captive program, participating small employers can hold on to profits—if premiums they pay exceed claims and other costs—rather than surrendering profits to a commercial insurer, as would be the case in a fully insured program.

“We can save employers money by eliminating carrier profits,” said Gary Becker, president of Becker Benefit Group Inc. an Owings Mills, Md.-based insurance agency and consultant that works with small and midsize employers on group health care captive approaches.

Some of the programs are relatively new. For example, Avizent Alternative Risk, a unit of Avizent, a Columbus, Ohio-based TPA and risk management service provider, launched a program last month that provides coverage above a minimum $25,000 self-insured retention to employers with at least 50 employees.

Coverage is offered through a cell that is part of a Bermuda captive, Atlantic Gateway International Ltd., which Avizent owns.

By year-end, “we'd like to have 1,000 lives covered through the program,” said Rick Stasi, chief operating officer for Avizent Alternative Risk in Lexington, Ky.

Other programs are expanding. For example, Vermont-domiciled SystemsPlus Mutual Insurance Co. was launched last year as an association captive to provide coverage to the small-business membership base of the Cedar Rapids, Iowa-based National Systems Contactors Assn.

Then in January, the captive was redesigned into a sponsored segregated cell captive. In that arrangement, other trade organizations and industry groups can utilize cells to provide coverage to participating members, said Tim Johnson, CEO of Benefit Captive Re in Norwalk, Iowa, which is the captive's program manager. The newest cell participants are members of the Oak Brook, Ill.-based Associated Equipment Distributors Inc.