Are Benefits Captives The Answer?

After looking to the traditional market, buyers of employeebenefits sometimes find that the coverage sought is unavailable,too costly, or doesn't fit within the employer's benefits package,said Kathleen M. Nilles, an attorney with Gardner, Carton &Douglas in Washington, D.C.

“So it's within that context that we see employers looking atthe possibilities of self-financing their employee benefits throughthe use of an insurance captive,” she said. “The biggest challengeis getting approval from the U.S. Department of Labor in a timelymanner.”

Ms. Nilles spoke on the topic last month at the South CarolinaCaptive Insurance Association's annual conference in Charleston,S.C.

She added that an organization wanting to implement a newbenefits program “doesn't want to conceive it in year-one andimplement it in year-two,” which is so far the case with Decatur,Ill.-based Archer Daniels Midland Company, an agriculturalprocessor and the second company to go through the DOL approvalprocess. ADM submitted an application to the DOL in February of2002 and is still awaiting approval.

The approval process for employee benefits captives is expectedto be expedited once ADM gains approval, however. Once ADM gets thegreen light, she said, there could be a flood of applications foremployee benefits captives.

Ms. Nilles said her law firm and others have been contacted byorganizations interested in writing employee benefits in a captiveusing the expedited process.

In 2000, the DOL gave approval to Columbia Energy Group to usethe Vermont branch of Columbia Insurance Corp. Ltd. in Bermuda toreinsure long-term disability benefits.

South Carolina also has approved legislation that would allowcaptives to write employee benefits and other coverages.

“The main thing everyone is waiting for is the Department ofLabor,” said Clayton Ingram, manager of business development andalternative risk transfer services for the South CarolinaDepartment of Insurance. “As soon as they give the go-ahead andprovide a template for other companies to follow, we can proceedwith employee benefits.”

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, January 6, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.