After a two-year hiatus, it was great being able to attend The Cayman Captive Forum in person this year. As the Cayman Islands is the second largest captive domicile, and the first for healthcare captives¹; it is the perfect location to share leading trends in the captive world, and the warm temperatures and tropical views made it all the more enjoyable. If you weren’t able to attend or could use a refresher after returning to the “real world,” this quick recap might be of interest. Below are some of the buzziest topics at this year’s conference.

1) Tax Updates

On large attraction to captive insurance (and certain domiciles) relates to tax advantages. It’s complicated, though. Some of the tax-focused sessions presented at the conference were:

– Mike Domanski, a lawyer from Honigman LLP, discussed offshore federal tax considerations and U.S. tax reporting requirements in his session titled “Captive Insurance: Basic Tax Fundamentals.”

– In a session titled “The State of Tax: What You Need to Know,” experts discussed U.S. federal tax updates and how taxes will be affected by the Inflation Reduction Act and updates to Section 831(b).

– The penultimate presentation titled, “U.S. Tax Update” tackled IRS and compliance updates in the U.S. on both the federal and state levels.

2) Cyber Risks

Since the start of the pandemic, employers had to adjust to remote and hybrid workplace policies. This transition forced employers and employees to rely more on digital tools to conduct day-to-day operations and made organizations more susceptible to breaches. This is not the first year that cyber took the spotlight, but there were some great discussions around risk in this area, including:

– A session titled “Placing Cyber Liability in Your Captive” reviewed current trends in cyber treats and how insuring cyber in a captive can prevent devastating losses.

– Risk and Cybersecurity experts from the Cleveland Clinic explained why the healthcare industry commonly falls victim to cyber attacks and outlined steps to take to protect patient and caregiver privacy in their session, “Current & Future Cyber Risks In Healthcare: ‘Will you still love me, tomorrow?’”

3) Healthcare-Specific Coverages

In recent years, we have been seeing an increasing number of healthcare organizations leverage their captive to bring new and industry-specific lines. At this year’s Cayman Captive Forum we learned about how captives can be used for the following emerging and alternative risks:

a) Medical Malpractice/Medical Errors

As the Cayman Islands is the most popular captive domicile amongst healthcare organizations, there was a large focus on healthcare-specific risks. There was a particular emphasis on how healthcare employers can reduce and prepare for potential medical malpractice/errors as noted in the following sessions:

– Presenters from the “Criminalizing the Clinical Defendant: Straight from the Headlines” session facilitated a mock deposition to address common medical malpractice trends and how they should be addressed.

– A session titled “Can your Captive Eradicate the Impact of Covid on its Medical Malpractice Program? Will It Ever End?” reviewed how medical malpractice can impact claims and legal outcomes.

– Dr. Dan Shapiro Ph.D., explained his experiences with burnout in the healthcare industry and steps employers can take to support healthcare workers in his presentation “Labor Shortages, Employee Burnout & Medical Errors: Working Together to Improve Results.”

b) Workplace Safety & Patient Care

Workplace safety is another non-traditional captive line (outside of employee benefits and Property and Casualty [P&C]) gaining traction. Healthcare organizations and, more specifically, healthcare workers and patients are prone to violence and discrimination more so than staff in other industries.

– In the session “Workplace Violence in Healthcare,” Trinity Health’s Diane Moritz explained initiatives their captive board are taking to prevent workplace violence injuries and support victims of patient violence.

– Children’s National Hospital’s Chief Diversity Officer, Denice Cora-Bramble discussed biases in data reporting for diverse patients, and experiences minority patients face when seeking health services in the session, “DEI Impact on Quality and Safety of Care.”

– I was joined by lawyer, Michael Domanski in a pre-recorded session titled “Using a Captive to Fund Long-Term Care,” during which we reviewed the current LTC market and different captive models (both taxable and tax-exempt) that can cover long-term care policies.

As we transition into a new era of captive insurance, this year’s Cayman Captive Forum acted as a perfect vehicle for addressing current and future themes in the industry. It was a strong end (almost) to an exciting year and we look forward to next year’s conference to continue these and other important discussions. Our team was fortunate to be part of the action in the Cayman Islands this year and is here to answer any questions you may have related to an existing or new captive program. Check out our captive expertise here and let’s chat!

¹ https://caymanintinsurance.ky/about/

As seen on Alera Group’s Insights Page

In the cyclical market for Property and Casualty Insurance, we are more than a year into hard-market conditions, leading growing numbers of businesses to consider alternative risk funding. That, in turn, has created an abundance of work for insurance actuaries and Captive Insurance consultants.

OK, that’s a lot of insurance speak for one paragraph. Let’s unpack:

— A hard market for insurance is characterized by a rise in rates, a reduction in options for coverage, heightened scrutiny by policy underwriters and reduced carrier capacity for coverage limits. A combination of catastrophic weather events and so-called “nuclear verdicts” in liability lawsuits — as well as the cyclical nature of the Property and Casualty (P&C) Insurance market — were the driving forces behind the hardened conditions before the onset of COVID-19, and the pandemic exacerbated matters. Rate increases have leveled off to some extent in 2022, but, in general, most conditions in the market remain unfavorable to consumers.

— Alternative risk funding — also known as alternative risk financing or alternative risk transfer — is a mechanism for providing coverage by means other than commercial insurance. Types of alternative risk funding include Captive Insurance programs, in which a business or group of like businesses creates and funds its own private insurance company to cover one or more risks in the realms of both P&C and employee benefits. Workers’ Compensation, General Liability, Auto, Professional Liability and Medical Stop-Loss are the more common coverages to start with when insuring through a captive, but captives often expand into a funding mechanism for many of an organization’s other lines of insurance, including Cyber and Umbrella (also known as Excess Liability Insurance).

— Insurance actuaries use math, statistics and financial models to analyze the cost of risk and determine how much money a company should pay to protect itself against risk. All insurance carriers employ actuaries to help set policy premiums and limits. Some insurance agencies work with actuaries to negotiate policy details with carriers or, in a captive arrangement, to determine a premium that will cover claims and, in the long term, reduce the insured’s total cost of risk. Captives have the advantage of also building up retained earnings over time and allowing companies to take on more risk, generating additional insurance cost savings for the parent. Among multiple P&C capabilities, actuaries who work with or for an agency also educate clients on the cost of risk and how to manage it.

Now that we’ve cleared that up, let’s talk about the role of an actuary in managing the cost of risk and protecting your business with a customized insurance program — whether you’ve chosen to pursue alternative risk funding or not.

Why an Alternative Solution? And Why Now?

Business leaders know all too well about the hard market for Property and Casualty Insurance. Just as the pandemic began to wane early in 2022 and there were some signs of casualty rate increases leveling off, Russia’s invasion of Ukraine escalated supply-chain disruption and fuel shortages, accelerating the rise in economic inflation. Damage resulting from Hurricane Ian only made matters worse, of course, driving reinsurance — insurance for insurers — into what the Bank of America termed a “true hard market” of its own, with rising costs getting passed on to consumers. These issues have led to overall increases in U.S. P&C industry combined ratios over the past few quarters, sparking further rate increases for certain lines.

It’s no wonder more organizations are looking at captives and other alternative risk-funding solutions.

“Overall, between 2017 and 2021, captives added $4.3 billion to their year-end surplus while returning $5.8 billion in stockholder and policyholder dividends, representing $10.1 billion in insurance cost savings over purchasing coverage from commercial market third parties.”

“The number of U.S. captives continues to rise, although the growth of captive formations was tempered by the onset of economic uncertainty resulting from the pandemic, as well as ongoing scrutiny from the IRS and greater regulatory and reporting requirements.”

“However, these adverse conditions can serve to highlight the benefits of the captive segment and provide businesses an incentive to establish them,” said Fred Eslami, associate director, AM Best.

“‘This current environment allows captives to customize coverage for risks that may be uncommon or difficult to write or place in the standard market,’” Eslami said.

The growth in Captive Insurance has led to an increasing willingness on the part of carriers to work with captives and regard them as partners rather than threats, increasing options for captive solutions. And even if an organization in the end chooses to forgo alternative risk funding – either for an entire P&C program or for individual coverages, such as cyber or commercial umbrella – simply exploring an alternative and having it as an option can improve its position in the insurance market.

Actuary Capabilities: Your Data, Your Future 

For insurance agents and brokers, designing an insurance program tailored to your industry and company is as much art as it is science. Working with an actuary enables you to incorporate greater amounts of empirical evidence into evaluating risks and determining insurance solutions: Here’s what the numbers demonstrate about your situation now, and here’s what our analysis shows about how you’ll perform using this solution.

While any good broker will work to design an insurance program customized for your business, a broker working with an actuary will be especially well-equipped to design a solution tailored to your unique needs and goals. Among the key issues an actuary can help brokers work through are:

1. Determining appropriate retention/deductible levels to help the client reduce the total cost of risk;
2. Estimating client retained unpaid claims liabilities at quarter/year-end;
3. Estimating carrier letter-of-credit need for a large deductible program; 
4. Estimating possible retained loss outcomes at various confidence levels;
5. Performing a captive feasibility study.

Many brokers work in silos, taking a vertical approach in evaluating risk based on industry. Actuaries generally don’t distinguish by industry; they analyze across various industries, focusing on each individual client’s loss history (including frequency and severity), claim status, policy details, exposures and risk-control program before determining financial projections for the organization. Taking the long-term view allows for consideration of fluctuations in company and market performance over a period of time, and increases the likelihood of long-term savings and profits.

Optimizing Your Insurance and Benefits Solutions

As companies grow, they generally reach a point where their claims experience is predictable across one or more lines of coverage. Able to determine such predictability, an actuary can then help you:  

• Minimize your total insurance spend, directing more money to the coverage your business needs the most. 
• Reduce spending on the risks you have under control. This is where alternative risk funding becomes viable. 

If you’ve reached the point where your business is paying, say, $100,000 to $250,000 in annual premium, a group captive might be the best solution because you probably aren’t yet structured appropriately to meet the insurance tests required to form a single-parent captive and the economies of scale may not be there for a single-parent captive solution. In such a case you may need to diversify your risk with other organizations (heterogeneous or homogeneous) — in a group captive or in a shared-risk pool solution utilizing reinsurance — for at least the time being.

The bigger, more complex, more diversified a company becomes, the more a fully funded, single-parent captive emerges as an optimal solution in which the business is insuring only its own risk. A single-parent captive also allows for more coverage flexibility and transparency than a group captive program. Quite often, both benefits and P&C risks are insured by a single-parent captive.

What drives the decision to move from traditional, carrier-based insurance to a captive program is savings and, ultimately, return on investment (ROI). How? By moving expenditures that create carrier profits into the captive solution. Captives are highly efficient, with very low expense ratios, unlike carriers. Free from providing a carrier with underwriting income and investment income on held reserves, you’re able to retain this income to ultimately generate a profit and facilitate an insurance mechanism that competes with the commercial market.

An Organization-Focused Approach

In taking an organization-focused approach toward financial analysis, actuaries look not only at funding for Property and Casualty Insurance but also at spending on employee benefits. Most captive insureds will see annual savings between 10% and 40% for premiums that flow through a captive instead of the commercial market.

As we approach the end of the year, Alera Group invites you to the final event in our 2022 Engage series of employee benefits webinars, A Look Ahead to 2023: Hot Topics and Trends. Join us on Thursday, December 15 as we discuss benefits financial officers and HR professionals need to think about now — including alternative solutions — as they plan for the year ahead.

ACCESS ALERA’S WEBINAR HERE 

As the Cayman Captive Forum starts just this week. We are proud to announce Spring and our consultants have been recognized for multiple awards from Captive International’s Cayman Awards 2022. We look forward to continuing to do excellent captive work in all domiciles, including but not limited to the Cayman Islands.

Spring has been awarded for:

Background

On election day, Massachusetts voters were asked to approve or reject four ballot questions when casting their votes for Governor and Attorney General. The 2^nd ballot question focused on regulating Dental Insurance, which if passed would “require that a dental insurance carrier meet an annual aggregate medical loss ratio for its covered dental benefit plans of 83 percent¹” In layman’s terms, this means dental insurers will have to spend at least 83% of premiums on patient care instead of administrative costs, salaries, profits, overhead, etc. The legislation mandates that if an insurance carrier does not meet that 83% minimum requirement, they will have to issue rebates to their customers. It further allows state regulators to veto unprecedented hikes in premiums and requires that carriers are more transparent with their spending allocation.

Prior to election day, Massachusetts did not have a fixed ratio when it came to dental insurance and will soon be the first state in the nation to have a fixed dental insurance ratio. Although MA requires reporting from dental plans, there were no regulations on premiums. The proposed law sets up a protocol similar to what the Affordable Care Act (ACA) requires of health insurers, where in Massachusetts health insurance carriers must spend at least 85%-88% of premiums on care.

Over 70% of voters voted in favor of regulating dental insurance, the most one-sided response of all four ballot questions. Although at face value regulating dental insurance may seem beneficial for patients, the impacts are not cut-and-dry, and the legislation may affect multiple parties, from consumers to carriers and dentists and practice owners.

Leading up to election day, general reactions about the legislation from dental insurance carriers were negative, while it was supported by most dental practitioners. In fact, the ballot initiative was brought to fruition, in large part, due to an Orthodontist in Somerville. As we can see from the polling results, the general population, or consumers/patients, were also in favor of question #2 passing.

Potential Impacts

For patients: On the intangible side for patients/consumers, the law would provide some peace of mind that the money they pay for their dental insurance was going, in large part, to their care. There is also an indirect advantage to increased transparency, mitigating the typical confusion that surrounds insurance plans and payments. More tangibly, the change could mean that insurers are willing to cover more procedures as a means to hit their minimum requirement (good), however that could result in dental practitioners charging more (not so good).

For employers: We anticipate that the new law will give employers who sponsor a dental insurance benefit plan more control over pricing and protection against unreasonable rate increases. Since many businesses do not offer a dental plan, or offer it on a voluntary basis, the effects should be relatively small. On the other hand, if the law were to create a change in the number of carriers in the marketplace, this could have an impact on plan and network options and negotiating power.

For dental practitioners: With the change, one perspective is that dental practitioners will be able to better focus on the best care for each patient. They may also see an increase in business and revenue if insurers are allocating more dollars towards care and procedures.

For dental insurance carriers: Dental insurers largely opposed question #2 for obvious reasons, such as restrictions on how much they can charge and additional requirements they need to adhere to, but also for less obvious reasons. For example, some carriers argue that the law will require them to make up for profit loss by raising premiums, warning that they could increase by as much as 38% in the state². They have reason to believe this law will lead to less competition in the dental insurer marketplace, which typically does not benefit the consumer.

Conclusion

Having worked with Massachusetts employers of all sizes on their benefits, including but not limited to dental insurance, as well as interfacing with insurance carriers, being the broker representative for a large percentage of dental offices in the state and working with MDS, we are looking at this update from all angles. Our expertise and decades of experience in this industry enables us to make the following conjectures about passing of ballot question #2:

1. Dental insurance premiums may rise, but at a minimal rate
2. We ultimately believe this is a step in the right direction as an advocate both for our employer clients and their employees, and that transparency is a positive attribute largely missing from the healthcare experience today
3. Immediate impacts will also be minimal, but we may see some of the other factors mentioned above play out over the next few years

If you have specific questions about how the new law might impact your dental plan(s) or practices, please get in touch. In the meantime, you might be interested in watching our recent webinar, “Why Long COVID Needs Short-Term Attention” as you develop your 2023 benefits strategies.

¹https://www.sec.state.ma.us/ele/ele22/information-for-voters-22/quest_2.htm
²https://www.wbur.org/news/2022/10/18/massachusetts-ballot-question-2-explainer

It is estimated that ~44 million Americans are experiencing long COVID symptoms. During a recent Spring webinar, our SVP, Teri Weber was joined by a pulmonologist and a representative from Goodpath to review common long COVID symptoms and how it is impacting productivity and claims. You can access the webinar here.

Our Actuarial Team teamed up with Alera Group experts on this COVID-19 and Mental Health Trends whitepaper which looks at the post-pandemic mental health landscape, including impacts on employees, children, plan costs, care gaps, and substance abuse.

In collaboration with Alera Group, our Actuarial Team helped create a whitepaper which provides guidance around eligibility, procedures, and plan costs for coverage of over-the counter COVID-19 tests within health plans, as mandated by President Biden. You can find the full whitepaper here.

Within the last couple of years, we have seen drastic shifts in the wants and needs of employees nationwide. The COVID era sparked and enhanced new practices and benefits that were not popular in the past, such as mental health resources for remote workers, utilizing tech in HR and addressing burnout. Now that COVID effects are less severe and we have returned to more normalcy in many ways, employers must grapple with remote, on-site, and hybrid work models while keeping their workforce happy and engaged. These trends were evident in this year’s Annual Conference hosted by the Northeast Human Resources Association (NEHRA). NEHRA is one of the leading organizations that brings together HR industry professionals to network and share best practices. This year’s conference took place in Newport, RI and Spring had the pleasure of attending and exhibiting.

Here are some of the areas most focused on this year:

1) Adapting to a Hybrid Workforce

Although hybrid and remote work may seem like the norm for many of us, employers are still struggling to keep their workforce connected and satisfied while retaining efficiency. During the peak of the pandemic, many organizations moved to fully remote and are now looking at whether they will require employees to be in the office full-time, part-time, or not at all. Below are some of the sessions that best tackled this issue.

– A session titled “Driving Career Development in a Hybrid World” explored how the adoption of technologies during the pandemic has led to an increase in professional career development tools, but on the other hand, has prevented many employees from showcasing their true talents.

– In the Closing Keynote Panel, three local HR executives from Mersana, Progress and Ocean State Job Lot explained how their organizations have maintained award-winning workplace cultures with a dispersed workforce.

2) Acquiring/Retaining (Next Gen) Talent

As baby boomers are exiting the workforce and Gen Zers are entering, it has caused a great shift in office culture and employee benefits. Gen Z grew up in a technological world with an emphasis on mental health, and often expect their organization to reflect the same standards. Here are a couple of noteworthy sessions related to attracting and retaining next gen talent:

– During “Bridging the Generational Gap through Wellness Initiatives,” a representative from the Town of Barrington, Rhode Island, described how their wellness initiatives have helped increase retention and alleviate burnout among cross-generational employees.

– Experts from Apprentice Learning and FHL Boston explained how organizations can introduce a workplace culture that attracts young people of color in their “Engage Your Employees to Build an Equitable Workforce for the Future” presentation.

3) Reinforcing Employee Wellness

At previous NEHRA conferences and other industry-related events we have seen a giant emphasis on mental health. This year the topic of mental health resources has taken a back seat and many industry leaders chose to focus on the related subject of employee wellness practices instead, spotlighting the importance of…

a) Creating a Culture

Creating a workplace culture with employees of different ages, experiences, locations, and expectations can be a daunting task as an employer. Below are a few of the sessions that provided insights on how to best establish an inclusive company culture.

– National Behavior Health Leader, Dr. Joel Axler discussed signs and symptoms of someone struggling with mental health challenges employers should look out for during his session “Empathy in the Workplace.”

– Roman Music Therapy Services, Meredith Pizzi spotlighted unique ways HR teams can generate workplace cultures that reflect the company’s vision while also inspiring employees.

b) Just Add Joy!

Creating a workplace culture with employees of different ages, experiences, locations, and expectations can be a daunting task as an employer. Below are a few of the sessions that provided insights on how to best establish an inclusive company culture.

– In the Keynote Presentation titled “Create a Workplace People Love – Just add Joy!” the Co-Founder of Menlo Innovations, Rich Sheridan, suggested organizations move away from outdated corporate traditions and adopt new approaches based on what employees want.

– In the breakout session, “What is Stealing Your Joy? Simple Steps to Bring it Back,” attendees had the chance to openly discuss what obstacles are weighing them down at work and possible solutions.

All in all, the conference was a great success and provided an excellent atmosphere for networking and discussing industry trends. Every year I feel like I’m seeing more young talent, which gives me a good feeling about the future of our industry. I am already excited to see what next year’s conference brings!

Spring has been selected to help the Maryland Department of Labor (MDL) more effectively implement and administer the Family and Medical Leave Insurance (FAMLI) Program. Check out the press release here.