Captive insurance programs

Captive insurance strategies are a variation of self-funding strategies. Like other self-funding strategies, captive insurance programs have the potential to produce a great deal of savings for your organization. Did you know that small and medium size organizations can realize the same cost-savings from self-fundings that larger organizations are able to get?

If you need to deliver a competitive benefits package and beat rising healthcare costs, captive insurance programs are one of the tools that you can access to bend the cost curve for employee healthcare benefits.

Captive insurance programs

Captive insurance programs use a pooling approach to minimize the impact of large but non catastrophic claims that are shared by the entire pool. Small claims are paid directly through a third party administrator and catastrophic claims are covered through traditional stop/loss policies. Several employers join together to form what is in effect a private insurance company.

Many captive insurance programs are industry specific but they do not need to be. Like a level funding approach, captives generally utilize networks of nationally recognized insurance companies so your staff generally will not experience any difference when claims are paid out. In all cases, a third party administrator handles claims processing.

How does the pooling approach work in captive insurance programs?

Each employer pays into the “pool” to cover medium sized (non catastrophic) claims. If the dollar amount of “in-pool” claim payouts exceeds the amount in the pool, the group shares the loss. However, the loss is capped at a threshold defined by the prover. If the dollar amount of “in-pool” claim is less than the amount in the pool, then your organization shares in the profit.

Catastrophic claims are still handled by an insurance carrier. Your organization will pay premiums to the insurance company to cover cases where the claims of one individual exceeds a threshold defined in the plan, and to cover cases when the total of all claims exceeds an annual threshold.

The bottom line

A captive insurance program can enable you to retain a portion of your insurance carrier’s profits—and put that savings to work for your organization. When employee claims are modest, your organization gets a portion of the profit that would have gone to an insurance carrier. When employee claims are extensive, your captive insurance program absorbs the shock and insulates your organization from extra costs.

Even as a small or midsize employer, you can apply a captive insurance program to gain control of employee benefit costs.

Take the next step—get out of the box

Want to learn more about self-funding options for small and medium organizations, contact us today.

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