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Captives crucial to managing enterprise risks


BOCA RATON, Fla. — Captive insurers can be the foundation of an enterprise risk management program for companies seeking to advance their risk management strategies, captive experts say.

The multi-disciplined makeup of captive boards combined with the traditional strengths of a captive framework in managing claims and pricing risks combine to produce a powerful ERM tool, they say.

Captives are an excellent structure for testing and running an ERM program, said insurance and captives consultant Michael Maglaras, principal of Michael Maglaras and Co. in Ashford, Connecticut.

One of the main advantages of having a captive involved in ERM is that most single-parent captives are fully consolidated subsidiaries of their parent companies, so any efforts that reduce claims and other risk-related expenses have a direct effect on the balance sheet of the parent, he said at the World Captive Forum in Boca Raton, Florida, on Tuesday.

Captives are useful tools in determining what exposures should be insured or self-insured. “Captives are all about analysis and understanding balance sheet management,” Mr. Maglaras said.

In addition, captive boards usually are made up of experts drawn from a diverse range of disciplines, including financial and executive leaders from the parent company, who must be included in successful ERM program management, he said. “You need a broad-based view to control enterprise risk.”

The use of a captive in an ERM program also helps create an organizational culture that focuses on risk, said Ruth Cardiello, vice president of enterprise risk management of Stamford Health System, a hospital system in Stamford, Connecticut.

For example, Stamford Health System physicians and therapists are conducting more home visits for patients that can't travel. With the multi-disciplinary captive board, the captive and the organization was able to address the related exposures before they were confronted with losses, she said.

“Five years ago, I would have heard about (the increased home visits) after an incident occurred,” Ms. Cardiello said.

And the claims management and insurance pricing functions of a captive are also vital for running an effective ERM program, Mr. Margalas said.

“The claims aspect of managing captives is the least sexy part of captives, but it's the most important,” he said.