By David Lyons
Captive insurance companies, once the province only of big corporations, are now an option for many businesses, including closely held and family firms.
Group captive insurance companies — which provide insurance coverage to and are controlled by their owners — are a way for businesses to grab greater control over their risk management and insurance costs and quality.
The workers compensation cost spiral in Delaware, Pennsylvania and Maryland is a big problem pushing decision-makers toward the safer harbor of captive insurance.
The price jolts in workers compensation are coming each year and are hitting businesses hard. The companies that are not having significant losses in workers comp are, in effect, subsidizing others with claim problems. Delaware workers compensation rates increased 14 percent for the standard market and 11.4 percent for assigned risk beginning December 2013, according to the state insurance department.
We at Lyons Companies recently hit a milestone: We placed our 100th client in a group captive insurance company as an alternative risk protection mechanism.
As an example: Parcels Inc., a firm with 125 employees in Delaware serving the legal, corporate and graphics community, wanted to be recognized for its safety record and risk management performance. “Our big concern was that year after year, prices were going up with no chance of getting any money that we were spending on premiums back — even if we had good years in terms of losses,” said Sean Kennedy, vice president of Parcels Inc.
The firm’s leaders liked the captive concept as an alternative for workers comp costs. Parcels now taps the captive insurer for workers compensation, automobile, and general liability insurance. “Being in a member-owned captive insurance company heightens self accountability. The captive gives us the ability to have our insurance costs based on how we perform in safety and risk management. In the captive, everyone is pushing toward the same thing: a small amount of claims,” Kennedy said.
Mid-market firms — including construction, energy, food, healthcare, transportation, retail and services companies — are tapping captive insurance solutions.
A group captive insurance program typically includes:
• The business is evaluated by the insurance broker and the captive management company, based on insurance and risk management factors.
• The business pays initial capital to become an owner (“member”).
• The member pays premiums based on individual loss performance and actuarial estimates.
• The business works with risk management specialists on safety and risk issues.
Said Kennedy of Parcels: “We have a pretty clear blueprint as to what needs to be done to improve even further in our safety and risk management. It’s satisfying to know we and other members are in control.”
Lyons Companies as the insurance broker provides the feasibility study to determine if a captive is appropriate, recommends the appropriate captive, and places the company in the captive.
About the Author: David F. Lyons Sr. is president and CEO of Lyons Companies (www.LyonsInsurance.com), an insurance brokerage, risk management and human capital management and employee benefits firm based in Wilmington, Delaware. David can be reached at (302) 658-5508 or dlyons@LyonsInsurance.com.