Each group self-insurance option provides members with someability to gain underwriting and investment income for certainassumptions of risk. Each program will appeal to employers whoembrace risk management principals and look for pricing stabilityand predictability.

In effect, they are tired of the traditional market roller coaster.However, they must be convinced that the group will be comprised ofmembers of like mind, and that the "club" will be selective inunderwriting.

Captives have the advantage of being able to write multiple linesof coverage in multiple states. Captive programs are fronted by an"A-rated" insurer, and risk sharing and shifting occurs in areinsurance environment. Employer risk assumption is always a knowncommodity and capped by specific and aggregate reinsurance.

Rent-a-captives provide ease of entry without capitalization, andrisk is generally secured by a letter of credit or interest bearingaccount.

Offshore or onshore, homogeneous or heterogeneous, primary riskshare or aggregate attachment--the opportunities for creative,tailored programs are endless with group captives.

Self-insured groups and trusts are essentially the same, but theydiffer from captives in key ways. Coverage is provided only forworkers compensation in a single state. There is no frontinginsurer and policies are issued by the group. Members are subjectto joint and several liability, which can be mitigated somewhatwith an effective reinsurance program. These programs are moreformulaic and heavily regulated by state insurance departments.They continue to be popular in states like Massachusetts and NewYork.

Once formed, the captive, SIG or trust becomes an excellent toolfor generating cost-effective new business.

Another advantage for agents is the ability to substantially loweracquisition costs for new business. Once sold, employers rarelyreturn to the traditional market, so account retention is high andannual shopping trips are unnecessary. The enabler usually handlescaptive administration and new member underwriting, so the agentworkload is reduced. Bringing prospects into seminars can beaccomplished in many cost-effective manners.

Studies have shown that for every dollar in revenue generated innew business by traditional producer sources, the agency's actualcost is between $1.20 and $2.25. When all the costs ofproducer-generated business are added up, the agency is providing aclear subsidy. This subsidy is made possible due to the lower coststo handle and retain "house accounts," or the fruits ofowner/principal producers. The table included with this articleoutlines this point.

Agents need to maximize revenue potential on existing accounts andprovide for a lower-cost source of new business. The captiveseminar sale can provide that tool.

Bob Barrese is executive vice president of ManagedComp Inc., aWoburn, Mass.-based managing underwriter and third-partyadministrator specializing in captives and the alternative market.He can be reached at (781) 956-9079 or [email protected].

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, March 11, 2002.Copyright 2002 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.

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