Own Your Risk: Exploring the Benefit of Captive Insurance
By Chad Duke, Scott Insurance, NCEO Member
Employee-owned companies understand the value of ownership. These innovative companies often have superior workplace cultures, top-notch retirement savings, and the ability to maintain independence over the long haul.
This certainly rings true at my company, Scott Insurance. As one of the oldest ESOP companies in the U.S. and a recognized leader in the insurance industry, our team at Scott approaches our work with an “ownership mindset” by challenging our clients to view their organizational risk through a different lens. We believe that when a company takes ownership of their risk, it can become a tool to improve culture and performance, leading to a stronger, healthier company with employees who are empowered to live well and do their best work.
One of the mechanisms we have championed over the years to help businesses accomplish risk ownership is the captive insurance model. Because we know the power of employee ownership so well at Scott—and because we know how effective captive insurance can be—we are excited to partner with the NCEO to share our insights and knowledge about captive insurance and explore the creation of group captive opportunities exclusive to NCEO member companies.
What is Captive Insurance?
Captive insurance is an alternative risk financing solution for companies of varying sizes. When forming or joining a captive, you essentially create your own insurance company, covering all costs up to stop-loss amounts typically covered by reinsurance. You don’t have to handle all the administrative functions—that is done by your providers. But by joining a group of like-minded businesses, you gain ownership and control of all aspects and costs of your insurance programs while creating the potential for significant financial gains, adding value to your ESOP. Captives are not for everyone, but for many companies they provide substantial savings.
Employee Benefits Captives
Health insurance costs account for the second largest employee-related expense for employers, second only to wages. In recent years, many businesses have raised employees’ premium contributions and increased deductibles or other out-of-pocket expenses to attempt to control rising costs. The current volatility and unsustainable nature of the traditional health insurance market has many employers flustered, fearful, and wondering if there is a better way to manage their employees’ healthcare benefit needs.
In our experience, a captive insurance program is a proven strategy to control health plan costs while providing health-care benefits and resources at a quality level typically only available to extremely large organizations. As a collective group, captive members gain access to data and insights that can help steer their employee health insurance programs. This level of transparency is simply not available to businesses operating in the traditional market. Another advantage to the captive group model is the potential for significant savings on administrative services, health management tools and network access fees.
Property & Casualty Captives
On the Property & Casualty side, captive owners/members are able to take advantage of an opportunity for significant financial return, while gaining control of their insurance program, including workers’ compensation, auto liability and general liability coverages. Additionally, in our experience, captive members have enjoyed a unique community with the other member companies, sharing best practices, learning from one another, and holding one another accountable to ensure peak performance.
In the traditional market, there is very little reward for optimal performance (i.e. minimal losses/claims) and yet there can be significant increases in premiums whenever you actually need to utilize your insurance coverage. Under the captive model, members benefit from the captive’s profitability when there is good performance and gain back unused loss funds plus income from investments. This direct return is a significant incentive for members to truly take ownership of their risk by better employing risk management strategies within their organizations. By shifting the focus from investing in insurance premiums, to investing in a risk performance culture, ESOP companies become stronger and gain greater control of their own destinies.
Why is an ESOP Company a Good Fit for a Captive?
The short answer is that employee-owned companies are simply better companies who value their people. Because ESOP companies are typically driven by the aforementioned spirit of ownership, they usually have better hiring practices, better employee retention rates, and better internal communications/culture. There is a strong correlation between these factors and the performance of a company’s insurance program.
Specifically, by valuing employee owners’ safety and well-being, employee-owned companies typically experience better performance related to their workers’ compensation insurance with better claims histories. Likewise, by valuing the health and wellness of employee owners, the medical plans of ESOP companies also typically yield better results.
As an employee-owned company, you are already experiencing better risk performance than your non-ESOP peers. Why shouldn’t you take advantage of the opportunity to benefit from your culture?