Owners leverage captives to negotiate lower rate hikes

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Risk Management

Gavin Souter

January 25, 2024 Reprints

ORLANDO, Florida – Risk managers can use captives to negotiate down prospective commercial insurance rate hikes, even if they don’t end up using the captives to cover the risks, several captive owners said.

They were speaking during a session Thursday at the World Captive Forum in Orlando, which is sponsored by Business Insurance.

Massachusetts Life Insurance Co. faced a tough property renewal two years ago, said John O’Neil, lead insurance counsel at the Springfield, Massachusetts-based company’s captive.

“We had not had a lot of claims … but some of the top layer property carriers really wanted a lot of premium,” he said.

The company decided to run the top layers of the property program through its captive but two days before the renewal the insurers returned with an offer of a significantly lower premium for the coverage, Mr. O’Neil said.

“We had walked away from it already, at least mentally and emotionally. It was almost like walking out of the car dealership thinking ‘I’m never going to own that car’ and then three days later the dealership calls you back saying, ‘Do you still want it because we can come to you a little bit,’” he said.

Jonathan Poling, director of risk management and internal audit at Sun Chemical Corp., recalled a similar experience when the Parsippany, New Jersey-based company faced significant increases on its medical stop loss program.

The loss experience on the program was very good but the insurer wanted to increase the premium by 45% at renewal, so Sun used a reinsurance broker to investigate coverage for the exposure via the company’s captive.

“When the incumbent found out that we were looking to move this into the captive, we ended up with a 7% or 8% increase and that was a big win,” he said.

Michael Serricchio, New York-based managing director at Marsh Captive Solutions, who moderated the session, noted that there has been an 84% increase in medical stop loss business in Marsh’s captives over the past three years.

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As an expert and enthusiast, I don't have personal experiences or access to real-time events. However, I can provide you with information on the concepts mentioned in the article you shared. Let's discuss each concept:

Risk Managers: Risk managers are professionals responsible for identifying, assessing, and managing risks within an organization. They develop strategies to minimize potential losses and protect the organization's assets. Risk managers often work closely with insurance professionals to determine the most effective risk management solutions.
Captives: Captives, also known as captive insurance companies, are insurance entities established by organizations to provide coverage for their own risks. Captives are owned and controlled by the organization they serve, allowing them to tailor insurance programs to their specific needs. Captives can be an alternative to traditional commercial insurance and may offer cost savings, greater control, and flexibility in risk management.
Commercial Insurance: Commercial insurance refers to insurance policies purchased by businesses to protect against various risks. It includes coverage for property, liability, workers' compensation, professional liability, and other business-related risks. Commercial insurance policies are typically provided by insurance companies and are subject to premium payments based on the level of risk exposure.
Rate Hikes: Rate hikes refer to increases in insurance premiums. Insurance companies may raise premiums due to various factors, such as increased claims, changes in risk profiles, market conditions, or regulatory requirements. Rate hikes can impact the cost of insurance coverage for businesses and individuals.
Renewal: Insurance policies are typically issued for a specific period, such as one year. At the end of the policy term, policyholders have the option to renew their coverage. During the renewal process, insurance companies may reassess the policyholder's risk profile and adjust premiums accordingly.
Reinsurance: Reinsurance is a risk management strategy used by insurance companies to transfer a portion of their risks to other insurers. By purchasing reinsurance, insurance companies protect themselves against large losses and ensure their ability to pay claims. Reinsurance can help stabilize the insurance market and provide additional capacity for insurers to underwrite policies.

Please let me know if you would like more information on any of these concepts or if you have any other questions.

Owners leverage captives to negotiate lower rate hikes - Business Insurance (2024)

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