Risk & Business Magazine Bowen Miclette & Britt Fall 2016 | Page 6

HOW DO YOU CHOOSE?

BY: PAUL CERONE, COO,
BOWEN MICLETTE & BRITT

Guaranteed Cost, Group Captive
Or Large Deductible:
How Do You Choose?

I

f you’re currently on a guaranteed
cost insurance program and are
considering exploring the world of
self-insurance, then a group captive
solution may be a viable option.

Historically, a very small percentage of
companies qualified for group captives,
either due to company size, operations or
loss experience; however, that is no longer
the case. While only the best performing
companies are typically eligible, the
premium threshold is now well within the
traditional “middle market” space. This
which dramatically increases the availability
of group captive solutions.

By participating in a group captive, you
essentially own a portion of the insurance
company that is used to finance the
risk, which increases your control over
traditional insurance company operating
costs such as claims, loss control, actuarial,
reinsurance, audit, etc. Also, since there is
no load for profit, all unused loss funds are
eventually returned to member companies
with investment income included, which
can translate into 50 percent or more of
your annual premium spend in dividend
potential. If it were just that simple, we’d all
make the move to loss-sensitive programs
and never look back. Needless to say, there
are a number of other factors to consider.

6

|

FALL 2016

On the self-insurance risk-reward
continuum (Fig. 1), group captives are
generally considered a step above smalldeductible, guaranteed-cost programs and
a step below large deductible programs.
The former provides the comfort of
retaining a small, finite amount of risk
while the latter allows you to retain all
the risk desired up to a financially viable
deductible threshold. Group captives fall in
the middle simply because your company’s
maximum liability is a known quantity on
the front end. However, you still retain risk
by putting a portion of your premiums in
play to pay losses (both yours and those of
other members) and you may be subject to
assessments due to poor loss experience.
SO, WHAT IS A GROUP CAPTIVE?
A group captive is an insurance company
that is owned by its members and formed
for the specific purpose of insuring
the exposures of a homogeneous or
heterogeneous group of companies.
Regardless of economic cycle, companies
are challenging every line item on their
income statements and see insurance as a
prime opportunity to reduce expenses. To
that end, companies that are financially
strong, invest in safety, and demonstrate
the ability to control losses are likely very
good candidates for a group captive or other

deductible product.
WHAT ARE SOME OF THE BENEFITS OF
JOINING A GROUP CAPTIVE?
1) CONTROL
The captive members own and manage
every aspect of the program administration
2) STABLE PREMIUMS
Since premiums are based on your
company’s five-year loss experience and
exposures, group captives are not subject
to capacity and market changes that occur
in the broader marketplace. This allows
member companies to better control their
own destiny relative to program cost.
3) SHARE IN THE PROFITS
Approximately 60 percent of premiums
are available to fund losses and represent
potential dividends returned to the member
company.
4) GREATER CONTROL OVER CLAIMS
MANAGEMENT
A third party administrator is hired by
the captive members to handle all claims,
which means they work for you and not the
insurance company.
5) TAX SAVINGS
Premiums are tax deductible.