Workers Comp Cost Savings = Employer Control
How does the Workers Comp cost savings comes from employer control ? I have covered the ways that almost any employer can apply some of the techniques used by fully self insured employers to control Workers Comp costs. We started with what the very small employers can do up to very large employers.
There is one area that I intentionally left out until now. Somewhere in the mix between small deductibles and fully self insureds, captive insurance arrangements may be applicable. I recently had a client ask if they could have a captive when they were actually large enough to be fully self insured. The marketer for the captive seemed to have them convinced that a captive was superior to being fully self insured. I could not agree, unless there was some arrangement about captives that I do not understand.
I have posted about captives in the past. The definition of a captive is:
Captive insurance companies are limited purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. They sometimes also insure risks of the parent company’s customers. A captive is a risk management technique where a large corporation can finance losses by making payments to a wholly owned subsidiary called a captive insurer who then pays the losses.
If the captive only insures its single parent corporation and/or subsidiaries owned by the parent it is called a pure captive. Captives are located in many places offshore from the United States, including Bermuda, Cayman Islands, Vermont, Guernsey, Luxembourg, Barbados, and the British Virgin Islands.
There are many advantages to captives. One of the areas that we have covered over the last few posts is control. Some of the control is turned over to a captive manager and the claims are usually handled by a TPA. One of the concerns that we have heard from captive insureds is the inferior claims handling by the assigned TPA. The other concern we have heard is when the fronting company or captive manager goes out of business. Who handles what then?
Captives are still very new to the Workers Compensation industry. Therefore, we cannot recommend the use of or the avoidance of a captive.
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