Self-Funding 101: Captives

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Creating an employee benefits package that can attract and retain employees while still controlling costs is a growing challenge for employers.  As a result, employers are looking at alternative benefits as a way to script benefits and control overall costs.  Because of this, many employers have opted to cut out insurance carriers and instead fund their group employee benefits risks with captives.

What is a Captive?

A captive is an independent insurance company created and owned by at least one non-insurance company.  To put it more simply a captive is a form of self-insurance in which the insured owns the insurer. Employers might choose to form a captive as an alternative to traditional insurance in order to better control costs and manage the risks associated with providing employee benefits.  Often a captive is made up of a number of different employer groups.

Advantages

  • A captive can offer significant savings and become a substantial long-term investment.
  • By entering into, creating, or even owning its own captive, an employer is able to keep all of the savings and interest income it earns from the captive.
  • Instead of spending money on insurance, an employer can actually earn money from its captive policy over time.
  • Some captives allow an employer to receive money back from stop-loss premiums if the group and captive perform well.

Disadvantages

  • Although captives may be a convenient and cost-effective alternative to traditional insurance for some employers, they may not provide the same benefits to every company.
  • If an employer’s insurance premiums and claims costs are already relatively low, a captive may not provide a significant return on investment.
  • Smaller companies may find that the cost of obtaining traditional employee benefits insurance is lower than the cost of creating and maintaining a captive.
  • Some companies may have to pay additional up front fees to the captive to join.

A Trusted Advisor

When it comes to insuring employee benefits risks, there are many options and factors to consider.  Having the right broker who understands how a captive works as well as the benefits and drawbacks is key.  If you would like more information about how AUI can help you, please contact us today.

 

This blogpost is a supplement to our webinar on self-funding insurance plans.  If you would like to learn more about how AUI is a leader in this area, please contact us.

2019-03-07T20:31:16-05:00