What is Captive Insurance?
Today we will be exploring captive insurance in more detail as a follow-up to last month’s blog. Before explaining why captive insurance programs are trending upwards, let’s review some basics. A captive is a way to add an extra layer of protection and reduce premiums compared to the traditional self-insured insurance plan. The self-insured model of medical insurance is when a company decides to pay for claims themselves instead of paying the insurance carrier’s premium to do so. Almost every large company has already adopted this model for the following reasons: cut out the profit and additional taxes insurance carriers build into premiums, transparency for claims data, and more plan flexibility.
Why Captives?
In the traditional self-insured model, a company would have their own stop-loss insurance (reinsurance to protect against large claims and high volume of claims), as well as manage other relationships themselves such as “renting” a network from an insurance carrier and having a TPA (Third Party Administrator) act as the processer while the company funds the claim payments. That is a whole lot to manage even for a very large company, but how would a smaller company manage all of this? This is where the captive comes in. A “captive” is a licensed insurance company fully owned and controlled by its insured. Small business owners invest their own capital and resources instead of paying to use a commercial insurer’s money. Captives are usually established as either mutual insurance companies or reciprocal insurers.
Benefits of Choosing Captives
As stated earlier a captive is a way to add an extra layer of protection and reduce premiums, but how? The captive provides this by bundling together many companies of similar size and interest and purchasing stop-loss coverage as a group. This lets a 100-person company (for example) have the purchasing power of a multi-thousand life group. This results in better premiums and better contract terms. In addition to lower premiums all captive members fund, an additional part is called the captive layer. This layer helps members offset higher-than-expected claims. This extra protection leads to more stability and less volatility for future renewals. Sounds too good to be true? But this is not! Even further captives can provide their members with additional data tools to better understand their claims and provide better service to their members.
How We Can Help
At The Medical Link, we can help find the insurance coverage that works best for you and your employees. If you are interested in learning more about captive insurance, contact us today to get started!
