Captive Optimization

Evaluate and Optimize Your Captive With the Industry-Leading Spring CARE system.

Often, as a captive matures, companies need to reexamine their captive to determine if changes need to be made for positive or negative experience, surplus release or additions and opportunities to add new lines of coverage like benefits or cyber risk. It is also a good idea to re-evaluate a captive when the regulatory environment has changed dramatically, new risks have emerged (or become stronger than anticipated) or the business expands. To address all these potential changes, our Spring CARE (Captive Analytical Risk Evaluation) Team recommends a captive evaluate its risk appetite and risk exposure at least every 5 years.

captive optimization

The Captive Optimization Cycle

Captive optimization starts with a captive refeasibility study. Every refeasibility study is different to varied degrees. The scope and resources required to conduct the study are dependent on the captive’s current structure, the events that triggered the study and the goals of the company. That said, through our Spring CARE system, there is a carefully-constructed evaluation structure in place that we use as our team works through the process of evaluating your captive.

A typical Spring refeasibility study, through the Spring CARE system, is conducted using the following structured processes:

Captive Optimization Process

Goals Stage:

  • Confirm the goals and objectives – new and old
  • Collect data
  • Interviews with senior management and other stakeholders

Impact Stage:

  • Conduct analysis of risk financing optimization
  • Review current reinsurance levels and optimize the use of reinsurance
  • Stress testing of the captive

Strategies Stage:

  • Analysis of additional lines of coverage that could be insured by the captive
  • Surplus management

Structure Stage:

  • Identify investment management best practices
  • Determine optimal collateral structure

Measurement Stage:

  • Analyze captive performance metrics against industry benchmarks
  • Develop implementation plans for recommended actions
  • Establish benchmarks for future performance

And at the conclusion of our captive evaluation period, the Spring CARE team will produce a refeasibility report for your company. In this report, we will review our findings and report our optimization recommendations.

You can find out more about captive optimization and/or discuss a refeasibility study for your captive by contacting our Spring CARE team by filling out and submitting the form below:

Related Case Study: Captive Refeasibility Study for Fortune 500 Organization

ADA & ADAAA Consulting

ADA and ADAAA require employers to make reasonable accommodations where possible to enable an employee to perform the essential functions of their job.

Conscientious, employee-centric employers highly value their talent and understand that supporting an employees’ need for a modification to the workplace, schedule or adaptation to a workstation is good for the employee as well as for the company.

Our Health & Productivity consultants talk to employers daily and we hear their accommodation questions and witness the confusion. We simplify answers to questions asked by employers such as:

• What is the interactive process?
• What is a reasonable accommodation?
• What is undue hardship?

and provide tactics for implementing a compliant and effective accommodation program.

For many employers, developing policies, protocols and process for accommodating a disabled individual in compliance with ADA and ADAAA can seem overwhelming and confusing. In addition to having to master a new vocabulary and fully understand the statutes, an employer may not feel that they have adequate skilled staff or technology to determine, implement, document and evaluate appropriate reasonable accommodations.

However, as a practical matter, most employees with impairments often know what accommodations are needed to allow them to perform essential job functions and most accommodations are without cost or inexpensive. Thus, by appropriately establishing an accommodation program, policies and processes, an employer can both comply with the requirements of the ADA and ADAAA and demonstrate commitment to providing a productive and accessible workplace.

Our Health & Productivity Team is made up of a number of highly trained disability management professionals. We help employers wade through the murky waters of ADA and ADAAA accommodation and help them ensure that they are compliant and their workplace is a happy and productive one.

Contact us today to discuss how our award-winning team can help your business develop an efficient and productive accommodation program for your employees.

Workers’ Compensation

No matter how hard you strive to make your workplace safe, accidents happen. Accidents are a part of life and a part of business and as much as you try to protect your employees, you need to be sure your business is protected as well.

Spring offers workers’ compensation program design, funding solutions and strategy consultation. We work with employers to identify the best workers’ compensation offering to suit their business needs. We explore the various methods of funding workers’ compensation (fully-insured, self-funding, etc.) and create a funding plan that works best for you.

In concert with program design and funding, our consulting team will help you craft an effective implementation process. Our health and productivity team views workers’ compensation as a key component of a fully integrated disability management and/or total absence management program. Our goals in bringing all forms of workplace absence together in an integrated manner are to reduce cost, increase employee satisfaction, improve employee productivity and reduce absence.

Contact us today to discuss how our award-winning team can help your business select and implement the right Workers’ Compensation product for your employees.

Small Insurance Companies — 831(b) Captives and Life Companies

Captive insurance companies are not just risk funding vehicles for large corporations. They may be the right solution for individuals and small businesses as well.

If the captive is structured and managed correctly, the captive may also qualify to elect 831(b) captive status, which states that the underwriting profit of the captive is tax free if the premiums paid to the captive are below $2.2 million. The only tax applies to investment return less non-claim expenses. Here is a typical structure that allows for risk transfer and risk distribution.

In thinking about creating an 831(b) captive, here are a few things you should consider:

  • Any captive could make the 831(b) election provided it has less than $2.2 million of premiums, but it is not right for all captives
  • Critical Issues to consider:
    • The extent that the family members own the entities for spread of risk
    • Long-tail versus short-tail nature of risk
    • Frequency and severity of losses
    • Loss history and expected future results
  • Typically the ideal coverage for an 831(b) captive is
    • Low frequency and high severity coverage types
    • Not available in the commercial market or very expensive
  • 831(b) is a tax election available to insurance companies only. If the captive does not meet the requirements to be an insurance company the election cannot be made, or must be reversed
  • A real business purpose must exist for the establishment of the captive, with a true insurance risk
  • Expenses are deductible up to the investment income received in tax year

Spring’s award-winning captive team is well versed in 831(b) captive regulation and has years of experience in establishing these types of captives. We can assist you through the entire process from feasibility study through approval and then management and review. Contact us for more information about our 831(b) solutions.

Group Captives

Many business leaders are now asking themselves if this is the right time to own a captive insurance company.  They have heard how successful captives have been in lowering premium costs, increasing coverage, accessing new insurers and controlling escalating health insurance costs.

Yet, owning and funding a captive still seems too costly for some businesses on an individual basis or they are part of an association that likes the captive approach…enter group captives.

See also our webinar on group captives

In a number of industries, employers have found that banding together to collectively fund selected risk in a group captive is an excellent way to control cost and increase plan control. Whether they exist to cover liability risks and/or benefit risks, group captives generally offer a number of advantages including:

  • Cost savings through pooled purchasing power on the risk and administration side
  • Reduction in need for captive to purchase reinsurance protection
  • Joint fixed cost savings
  • Joint management of first dollar claims

Additionally, group captive members can also enjoy the following benefits:

Group Captive Benefits

Spring has years of experience extending our industry-leading innovative captive solutions to groups seeking to finance their risk in captives. Please contact us to find out more about the services we offer to groups and to discuss a feasibility study to determine if a captive is right for you.

International Benefits & Multinational Pooling

Spring is a leader in helping multinational firms address their global benefit needs. From helping establish coverage for expats and third party nationals to setting up multinational pooling solutions for large, international employers, Spring is able to help address cross-border benefits and financing needs.

Multinational pooling is the practice of consolidating and combining a large, multinational employer’s global employee benefits portfolio into a centralized solution.

The benefits to a multinational pooling arrangement can include:

  • Lower administrative charges than those at the local level
  • Spread of risk over a larger group will reduce the risk charge that could otherwise be imposed on a smaller domestic subsidiary
  • Insurers in many countries are subject to tariff restrictions, resulting in lower premium rates regulated by law
  • When surplus is generated from good experience, companies can benefit from the investment opportunity and a dividend
  • Multinational pooling networks provide the insured company with detailed financial reports and other information regarding the pool
  • Small plans that participate in a pooling arrangement benefit from the fact that most networks relax (or may even wave) their evidence-of-health requirements

What employee benefits can a multinational pooling program include? Here is a brief rundown:

  • Group Life Insurance/Disability Insurance: Depending on the experience of the plan and the characteristics of each country, Group Life Insurance and Disability Insurance can be included in a multinational pooling arrangement
  • Health care Insurance: Health care insurance (medical and dental) is generally not included, but can be analyzed on a country-specific basis.
  • Pension Insurance: Pension Insurance (deferred annuity/deposit administration, immediate annuity) is only considered under limited circumstances, due to the lack of insurance arrangements involved.

Want more information about how a multinational pooling arrangement may benefit your company? Contact our team for a consultation.

Medical Stop Loss Insurance Captive Funding

Funding medical stop loss in a captive is a great way for employers who self-fund their health coverage to add a layer of protection from excessively high individual or aggregate health claims. Medical stop loss captives are not subject to department of labor approval in the United States like many benefit captives are and by funding stop loss in a captive, an employer gains access to lower-cost reinsurance they might otherwise not be eligible for as a direct purchaser.

How is Medical Stop Loss Insurance Funded Using Captives?

The following graphic depicts a typical medical stop loss captive funding approach:medical stop loss insurance captive funding

Self-insurance with stop-loss saves money through elimination of carrier profit, premium taxes, improved cash flow as the employer holds on to the claim lag between date of service and date of payment, exemption from state mandates (though not from ACA mandates) and reduced administration fees as these are bifurcated from the claims costs.

As claim costs are not completely predictable, self-insured employers are usually able to budget fairly closely to actual costs through the purchase of a well-designed stop-loss program.

Claims unpredictability generally arises from variance in the number of large claims for any one claimant and the cost per large claim.

The purchase of specific stop-loss insurance coverage protects from claims on any one individual exceeding a threshold amount, say $200,000, in a given year. Larger employers choose specific stop-loss attachment points as high as $350,000 to $750,000 while smaller employers may choose stop-loss levels of $30,000 to $100,000. An actuary can best recommend an appropriate attachment level to assure a small likelihood of claims exceeding a tolerable risk level, such as 110% or 125% of expected.

Stop-loss rates typically increase well in excess of normal medical trend. So if your underlying program costs have gone up say 8% your stop-loss costs are likely to go up well in excess, for example, 13%. The reason for this is the leveraging impact of the stop-loss coverage and attachment point. This results from the fact that claims that were just under the attachment point in 2012 with regular medical trend will be over the attachment point in 2013 and these will be added to all the trended claims already over the attachment point. To counteract this, employers often regularly increase their attachment levels. Captive funding minimizes these changes.

The most common stop-loss terms cover claims on a paid basis. For self-insured first timers, moving from a fully insured program is typically 12/12 – incurred in 12 months and paid in 12 months. This first year is referred to as “immature” as there are fewer expected claims paid due to the claim lag. The second year “mature” terms might be 24/12 to cover the incurred claims run out from the first year. For an increased price, a terminal liability option may be offered, where upon termination, the employer can purchase additional protection to cover the remaining claim run out.

In the past, stop-loss policies typically included a lifetime limit of $1-2 million. As employers can no longer limit their underlying plans it is important to have this lifetime limit removed from your stop-loss policy if you have not already done so. Stop-loss carriers may still look to impose annual limits. It is important that you make sure any annual limits coordinate with your underlying plan.

A crucial coverage for smaller employers is aggregate stop-loss protection. The typical cost is $5.00 per employee per month or less and protects against actual claims on amounts below the specific attachment point exceeding 125% of expected. Though the likelihood of hitting the aggregate attachment point is small, the cost for this sleep-well protection is cheap.

Aggregate stop-loss should not be confused with another offering to lower price – an aggregating specific deductible. By way of example:

Claim Specific Assumption Net
$225,000 $75,000 $50,000
$150,000 $75,000 $75,000
Aggregating Specific $100,000
Reimbursement $125,000

Often the reinsurer will reduce premium one for one, or $100,000 in this example.

At time of purchase and annual renewal, most stop-loss carriers ask for disclosure statements requiring the employer to disclose an adverse developing claims bid submission to the carrier. Typically they would like this about 30 to 45 days prior to the effective date. The disclosure statement asks for individual detail for potential large claimants based on past claim history, certain diagnosis, etc. If something adversely material shows up, the stop-loss carrier may want to discuss options such as raising the price, putting in aggregating specific deductible or lasering (excluding certain individuals or using a higher deductible for certain individuals). Carriers willing to provide final rates earlier may build additional margin into their rates.

Typically, employers purchase stop-loss on a single plan basis. Most coverage is purchased in the commercial market. Some employers purchase coverage from their owned captive reinsurer already providing insurance protections to other risks of the employer. This allows the captive to retain pricing risk margins.

As medical stop-loss risk is generally uncorrelated to the remaining captive risk the overall employer risk profile is reduced through this approach. Furthermore, the stop-loss program can be geared towards the needs of the employer including for example various risk sharing arrangements. The captive will typically purchase reinsurance protection to cover catastrophic claims and perhaps share in the claims risk. Generally carriers writing captive reinsurance protection are experts in this area and are not the usual direct stop-loss writers.

Who Should Consider Medical Stop Loss Insurance Captive Funding?

While every circumstance is different and anyone considering captive funding should seek the advice of a professional consultant, generally, $1 million in premiums is the threshold for single-parent stop-loss captive funding. For group captives, a total of 1,000 covered employee lives and $2.5 million in premium is the starting point. There are, of course, a number of variable which may dictate a higher or lower entry point for a particular company or group.

Next Step

Spring has a long history of developing innovative stop loss captive funding solutions for employers of all size across a number of industries. Contact our team using the form below for more information about captives and all of our medical stop loss funding solutions and you will also receive a copy of our recent white paper, “Funding Medical Stop-Loss in Captives: What You Need to Know.”

Healthcare Compliance

With the United States’ healthcare and insurance industries in a state of rapid transition, there is a great deal of confusion and concern among employers around ACA compliance. Everyone wants to do the right thing, but with the rules and regulations being rewritten and redefined almost daily, it is virtually impossible for you to keep up with all the changes, stay compliant and still run a successful business.

Spring is your trusted healthcare reform advisor. Spring’s team of brokers and consultants stay on top of the latest state and federal regulatory developments so you don’t have to. Spring’s compliance team will work with you, one-on-one to ensure your company is abreast of the latest rulings impacting you, the proper filings are complete and your company is in full compliance.

See also: The Spring Healthcare Reform Library

You need a trusted advisor to usher you through the murky waters of healthcare compliance. One that knows the ins and outs of what is currently expected of your company. Let Spring be that valuable guide for your business. Contact our compliance team today using the form on this page for more information about our services.