Strategic Cost-Saving Opportunities Digital 2014

Two for the money Viable – and valuable – option Health care savings opportunities for your company Mid-sized companies can benefit from captive insurance companies, too The captive insurance landscape Much is not yet known about how shop for insurance through mul- Captive insurance companies the Patient Protection and Afford- tiple providers. However, private Although captive insurance compa- able Care Act will affect the admin- exchanges can add their own filters nies aren’t practical for smaller istration of health insurance plans. regarding the providers allowed to companies with limited financial It’s an evolving landscape that participate and the criteria by which resources, smaller companies requires business owners, presi- they can accept new customers. can still utilize a captive plan by dents and CEOs to stay vigilant in “It’s basically a marketplace pooling risk and resources with their monitoring of the situation and where, in theory, insurance compa- flexible in their strategic planning. nies can put their product out there Two tools that business lead- and say, ‘Here is the price if you’re employees, you are too small to ers should consider in fashioning a 35-year-old male, and here’s self insure,” says Fine. “But if you the most prudent strategies for em- the price if you’re a 60-year-old can join together with four other ployee coverage and plan cost are female,’” says Goddard, principal, 100-employee companies, now private insurance exchanges and Insurance and Captive Insurance you have 500 total employees, and captive insurance companies. Advisory Consulting. “But there is a fallacy in the advocacy for Alan Fine and Bill Goddard, In- other companies. “If you have a company of 100 additional risk that might happen surance policies — such as cyber used to be dominated by corpo- to you in the future.” risk, environmental and pollution rate giants, as large corporations Instead of paying into an liability — are expensive or difficult were the only ones with enough insurance company’s profits, to obtain. Others, such as medical people and funding to finance a your company keeps the profits, benefits insurance, are suddenly captive insurance company. provided income outpaces claims. more complicated and costly. But as a result of changes in That surplus can be used as a “So if you can afford to fund capitalization requirements, cap- rainy-day fund to use as a buffer your own risk, why not be in your tive insurance companies are against future risk factors. own pool and not pay for some- quickly becoming a viable option “Insurance is based on pooling body else’s problems? Rather for mid-sized companies, as well. risk,” says Bill Goddard, prin- than exposing your business to “A captive insurance company cipal, Insurance and Captive risks that could drain profits, you is an insurance company that Insurance Advisory Services might want to consider starting a companies — or, in some cases, at Brown Smith Wallace. “When captive insurance company, which individuals — start themselves,” you buy auto insurance, you buy is essentially an insurance com- says Alan Fine, member, In- into a pool, where you’re assumed pany owned and operated by your that’s in the range where you can surance Taxes and member to be average within that pool business,” says Goddard. look at self insuring.” in charge, Captive Insurance for the purposes of premiums. While it may sound great in prin- For more on captives, see Advisory Services for Brown If you never have an accident, ciple, it’s important to do your due surance Advisory experts at Brown exchanges. If you’re a company, Smith Wallace, advise taking a you used to bring everyone to one the following article, an overview Smith Wallace. “One of the big you’re still going to be pooled with diligence to determine whether a very close look at these options. insurance company. Now you’re video or a more detailed video. advantages to captive insurance is people who have had accidents, captive insurance company is truly If you can find a number of other that when you start an insurance and you’ll pay for those accidents the right route for you and your company yourself, you can fund through your premiums. Some in- business to take. “No strategy is one size fits all,” bringing them to three insurance says Fine, member in charge, companies, or more. It might save companies willing to go in together Captive Insurance Advisory you money, but it might not.” and form a captive plan, becom- Services. “You might find that The key is whether you can ing part of a captive insurance pool both, one or neither are a good maintain a healthy employee popu- can allow you to flex the cost-con- option for your business. But lation — one where your employee trolling muscle of a larger company. you should vet these options population is healthy overall and thoroughly because they offer doesn’t file a large number of cause you can save money like considerable opportunities.” insurance claims. If those healthy a large company would by self employees purchase low-premium insuring,” Fine says. “But you have Private exchanges plans from one of the competing to have a large enough entity, in Privately run exchanges operate companies in the exchange, terms of employee head count, for much the same way as govern- your company could keep rates it to be worth exploring.” ment-sponsored public exchanges, fairly low. “It’s something to study, be- allowing individuals an interface to 8 Strategic Cost-Saving Opportunities • Digital 2014 bswllc.com 9

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