Employee Benefits Captives

What is a captive?

Put simply, a captive is a type of insurance company that an organization creates to insure itself.

Instead of buying insurance from a traditional insurance company, the business sets up its own insurance company - the captive - to cover certain risks. This allows the business to keep more control over its insurance costs, coverage, and how claims are handled.

The concept of a captive initially started in the Property & Casualty (P&C) space. But it has increased in interest to also cover Employee Benefits (EB) in the last 10-15 years.

Why set up a captive?

Typically, companies set up captives to achieve the following:

 1. Save money

Captives can significantly reduce insurance-related expenses over time by:

• Eliminating the need to pay profit margins to traditional insurers.
• Reducing costs associated with intermediaries, such as brokers.

Also, captives can provide favorable tax treatments, depending on the domicile’s jurisdiction.

 2. Greater control and customization of coverage

Captives give companies full control over the design and management of their insurance programs. This includes:

•  Tailoring coverage terms and benefit designs to meet specific needs (such as global minimum standards for employee benefits, removing exclusions or limitations, especially in smaller or underinsured locations, aligning coverage with company values e.g., offering same-sex partner eligibility, access to fertility treatments, and unlimited mental health support).
• Ultimate authority on claims handling.
• Data access and analysis to identify trends, to then put programs in place to reduce risks.

 3. Improve cash flow

Instead of paying premiums to an external insurer, premiums stay within the company’s captive. Organizations can then invest the funds and control timing of claim payments.

4. Better long-term risk management

Captives enable a more strategic, long-term approach to managing risk and cost by:

• Reducing reliance on annual insurance renewals and market fluctuations.
•  Providing stability and predictability in benefit financing.
• Allowing for proactive, data-driven risk management tailored to the company’s needs.

Why include EB in a captive?

In addition to the above, here are a few more reasons to add EB in a captive:

•  Adding EB balances the captive’s risk profile, for example improving the diversification of risks.
• Health and Life benefits tend to be less volatile than P&C risks, improving overall captive portfolio stability.
• It supports initiatives to implement targeted wellness programs and improve health trends, ensuring the long-term sustainability of benefits offered to employees.

Which companies should consider a captive?

• If you are already operating a P&C captive, it makes it easier to expand its use to EB.
• Larger employers are especially well-suited due to economies of scale and to justify the implementation cost.
  
• Organizations with mature, well-managed benefit programs and predictable claims patterns.
• Has an appetite for risks (e.g. already self-insured for some risks), internal expertise and knowledge and strong collaboration between HR, Risk Management and Finance functions.
• Forward-thinking organizations that want to offer benefits that are not always available in the insurance market.

How Origin helps

• Consolidate a view of all benefits offered around the world
  
  • Gather all necessary data to analyze and assess the business case for integrating international employee benefits (IEB) into a captive arrangement.
  • Identify plans which could benefit from being included within your captive.
  • Accelerate implementation by providing the required data and workflow support to help you implement IEB into your captive program efficiently and effectively.
    
    
• Ongoing monitoring and reporting
  • Centralize financial information for plans included or excluded from your captive, inclusive of premiums, fees and commissions.
  • Deliver regular updates and insights to key stakeholders to ensure compliance with corporate guidelines and alignment with your global captive strategy, covering both qualitative and quantitative measures.
  • Consolidate financial data to help you track captive performance and meet long- term risk and employee benefits objectives.
  • Understand the cost of running your captive across captive fees and commissions.
    
    

• Broker and intermediary optimization
  • Evaluate the services and remuneration structures of brokers and other intermediaries to ensure performance and costs are aligned with market standards.
    
    

• Global benefits strategy alignment
  • Ensure your benefits policies reflect your company’s philosophy, such as DE&I goals or global minimum standards, and are consistent across geographies.