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Captive insurers increasingly used for benefits risks: CICA survey


SCOTTSDALE, Ariz.—More than 80% of respondents to an annual survey conducted by the Captive Insurance Companies Assn. reported placing “only” or “some” employee benefits in their captives, a significant increase over the previous year, it was announced at CICA's 2012 International Conference.

Prior-year survey results showed captive owners reporting only minimal use of captives for insuring employee benefits, speakers told attendees at the conference, held March 11-13.

“We are seeing that in fact most captives do have some employee benefits in them,” said Michael R. Mead, president of M.R. Mead & Co. Inc. in Chicago.

Surprisingly, more owners also are using their captives for product recall and directors and officers liability protection, said Ryan Ralston, former vp of risk management for ERI Solutions in Colwich, Kan.

“There are all types of coverages you can put in a captive, but you have to keep your focus and you have to be clear about your objectives, because there is a temptation to put all kinds of (risks) in your captive,” Mr. Ralston said.

The survey results presented Monday from 120 respondents also revealed that to some degree captives are used by businesses across all industries. But more than two-thirds of survey respondents' captives serve four major industries: manufacturing, health care, financial services and other non-health care services.

For the second straight year, the survey also found that less than 50% of respondents reported using fronting insurance arrangements.

“So it's clear that a lot of captives are using their captive capital on a direct basis in order to fill gaps in terms of some coverage that they require for their business,” said Carol A. Frey, assistant vp of new business development for specialty and alternative markets for Great American Insurance Group in Cincinnati.

“It's not surprising,” Ms. Frey said. “Captives are very sophisticated tools, and there is a lot of expertise in the industry, and people are always going to try to find ways to be more efficient.”

Not surprisingly, the survey shows that captive owners place great importance on the level of claims handling services they receive from fronting insurers.

Nearly 40% of survey respondents said claims handling is “very important” to them. Yet only 23% said they were “very satisfied” with those services.

“There is a message here, and it's fairly consistent, that the markets that provide those services overall can do a better job,” Ms. Frey said.

CICA's survey is available at