Each group self-insurance option provides members with some ability to gain underwriting and investment income for certain assumptions of risk. Each program will appeal to employers who embrace risk management principals and look for pricing stability and predictability.

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

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

Rent-a-captives provide ease of entry without capitalization, and risk is generally secured by a letter of credit or interest bearing account.

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

Self-insured groups and trusts are essentially the same, but they differ from captives in key ways. Coverage is provided only for workers compensation in a single state. There is no fronting insurer and policies are issued by the group. Members are subject to joint and several liability, which can be mitigated somewhat with an effective reinsurance program. These programs are more formulaic and heavily regulated by state insurance departments. They continue to be popular in states like Massachusetts and New York.

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

Another advantage for agents is the ability to substantially lower acquisition costs for new business. Once sold, employers rarely return to the traditional market, so account retention is high and annual shopping trips are unnecessary. The enabler usually handles captive administration and new member underwriting, so the agent workload is reduced. Bringing prospects into seminars can be accomplished in many cost-effective manners.

Studies have shown that for every dollar in revenue generated in new business by traditional producer sources, the agency's actual cost is between $1.20 and $2.25. When all the costs of producer-generated business are added up, the agency is providing a clear subsidy. This subsidy is made possible due to the lower costs to handle and retain "house accounts," or the fruits of owner/principal producers. The table included with this article outlines this point.

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

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

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

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