It should come as little surprise that the group captive market is burgeoning amid a volatile economy. This is also a result of continued inflation and the hardening insurance market. In an uncertain financial landscape, insurance carriers and financial services companies pulling back are looking for alternatives to manage their evolving risk profiles, trying to build in safeguards for any potential recession.
That has sent organizations with good loss experience searching for alternative markets. They are looking to find ways where they have greater control of their insurance program. And, have their high performance beneficially impact their pricing.
Fortunately, organizations are finding this option in a group captive. In fact, a group captive which typically includes workers compensation, general liability and auto liability/physical damage is not only a viable way to gain control but is also a way to achieve significant premium savings when compared to the guaranteed cost market. That’s right – a risk mitigation strategy that pays dividends.
The Group Captive Dynamic
For focused, disciplined organizations willing to take on a more proactive risk management approach, a group captive can be a sound way to redirect insurance dollars for maximum impact. However, not every organization is the right fit for a group captive program.
AXA XL’s Group Captive team works closely with the Captive Intermediary to develop a vetting process for any potential group captive member. Together we look at the organization’s risk portfolio, loss history, risk management practices, and management team. There are criteria set for all the member companies that must be met in order to join a group captive program. That is meant to help all member companies performing well and ensuring that all new members follow the underwriting principle set.
Once an organization becomes part of the captive, our team works closely with the Captive Intermediary to actively manage the risk exposures to ensure it is in line with the captive principles. This combined team also ensures new member growth will not impact the profitability of captive through potential member screening and vigorous risk selection. The Captive Intermediary conducts underwriting, risk control and financial meetings twice annually with group members. This is done to assess the captive’s performance, improve their loss control methods, make changes to the captive underwriting parameters as well as provide financial insight.
Within the group captive, there is strong culture of risk management. This is essential. Many of the member companies, given their size, may not have a robust risk management team in place. The group captive infuses these member companies with risk management strategies and practices that improve their businesses. When managed properly, a group captive can and does often outperform the traditional markets.
For focused, disciplined organizations willing to take on a more proactive risk management approach, a group captive can be a sound way to redirect insurance dollars for maximum impact.
Profits, anyone?
When member companies improve their risk management, losses decrease. As losses decrease, this has a direct impact on the insurance premiums paid annually and lowers the overall cost of insurance. It also has an impact on the premiums previously paid. As the company improves or experiences fewer losses then projected, the funds held accumulate interest. That in turn, both unused loss funding as well as interest accrued becomes potential dividends that are distributed to the members.
More companies are actively seeking membership in a group captive to transfer risk while keeping insurance costs in check. We at AXA XL have seen significant growth in the group captive segment of the market within the last five years. As well-managed group captives continue to grow in both size and popularity, we expect this market segment to remain a strong growth area in the casualty product lines.
While the lines of coverage may be the same, Workers Compensation, Auto Liability and General Liability, the member companies are from disparate industries. For a captive to perform well, the management is key to its success. The Captive Intermediary is critical to the management of the captive. They educate potential members on how a group captive best function. They share the pros and cons of the traditional market, ensure there are meetings, risk management discussions, and reviews of the financial health of all member companies. AXA XL works diligently with them to ensure that member organizations are well-positioned to be accepted into the group and experience a seamless renewal.
Building a Better Group Captive
As the economy continues to put pressure on the insurance and financial markets, top performing organizations will be seeking new ways to transfer risk while preserving their budgets. A group captive could offer a sound alternative to traditional markets.
When you join an actively managed, select group captive, your organization can benefit from both the additional risk management support, and the potential profit that can be gained when all members in the captive work together. More importantly, your organization adopts a more robust culture of loss control and sound risk management practices. This builds a stronger organization and enhanced safety practices for all employees.
