Captive and Self-Insured Programs: Your Key to Cost Control

As a business owner, your prime directive is to keep your financial ship afloat. And, some of the largest expenses on your balance sheet relate to insurance – group benefits, workers’ compensation, liability insurance, property insurance and more. If you pay more than necessary for one of these expenses, it means you have less to spend on key differentiators such as inventory, product development, equipment, marketing and talent. Likewise, if your competitors pay less for insurance than you, they have more cash to invest. In this way, insurance and risk management decisions become a true competitive advantage … or disadvantage.

Fortunately, when it comes to insurance, you have choices. You don’t have to just accept the rate quoted for traditional insurance. While captives, self-insurance, partially self-insured plans and high-deductible plans were once tools for the “big boys,” that’s no longer the case. These alternative arrangements have become more mainstream and accessible, making them feasible for smaller companies as well.

If you’re wondering if an alternative risk arrangement might be right for your company, consider some of the key advantages:

• Cost savings. The principal aim of self-insurance is to improve profits by reducing premium costs. Many companies find that by entering into an alternative arrangement, they can save up 15% or even more, right from the start.
• Control. Policies, types of coverage, and retention levels, plan design, and claims management strategies are all customized for the specific needs of the business. That includes covering risks for which commercial insurance is either unavailable or prohibitively costly.
• Full data transparency. You’ll have complete access to loss data so that you can make informed decisions. This can be particularly useful in group benefits, aiding with plan design and wellness program design.
• Cash flow. The upfront costs involved with these programs is often less than that of traditional insurance, freeing up some insurance dollars and making it easier to manage your company cash flow.
• Choice of counsel. A business owner is free to choose its own attorney instead of relying on a commercial insurer’s choice of attorney.
• Claims administration oversight. Business owners are in complete control of how claims are administered. They can hire their own third party administrators and create their own rules of engagement.
• Known out-of-pocket potential. Yes, you have a bit more financial skin in the game, but it’s not as risky as you might think. Several layers of reinsurance are built into the program so your potential out-of-pocket is a known and static figure.
• Safety commitment. With an alternative risk management program, it’s easier to get invested in safety from the top-down, because the financial rewards of doing so are tangible and immediate.

With all these benefits, you might be wondering, why isn’t everybody doing this?

As a matter of fact, an increasing percentage of companies are taking control of their costs with alternative risk management strategies. According to a March 2015 Benefits Pro article, 26% of employers with 100 to 499 employees self-insure and 82% of companies with more than 500 employees self-insure.

Those who don’t explore alternative risk management options tend to be concerned about change, out-of-pocket exposure and the complexity of program setup. However, with so many companies jumping on the bandwagon, new products and options address those concerns. In other words: It’s much easier to go alternative than it used to be.

Ready to explore alternative risk management options for your group benefits, workers’ compensation or other business insurance needs? Contact the experts at Heffernan Insurance Brokers today.