As pharmacy and prescription drugs continue to drive healthcare costs for employers. Many are reevaluating their Pharmacy Benefit Manager (PBM) arrangement to ensure transparency, strategic alignment, and fair pricing. Click here to access our Q&A and generate your PBM Report Card.

Spring Consulting Group provides a wide range of Captive Services when it comes to the Employee Benefits and Property & Casualty (P&C) industries. In this Whitepaper, you can learn more about our captive services and how we approach captive implementation/optimization.

In 2023 we are expecting to see lots of changes when it comes to Paid Family and Medical Leave on both the state and nation-wide level. In this whitepaper, we break down the current landscape of paid leave programs and recommendations for employers to adopt and manage effective paid leave policies.

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.

Cell Captive Overview

A protected cell company (PCC) is a legal entity that can be considered as a condo of insurance. A PCC facilitates a turnkey solution for companies by offering clients an individually protected cell that is insulated from the risk of other cells within the PCC; each condo operates as its own captive (with certain restrictions) and does not share risk or rewards with the other condos in the building (PCC). PCCs can vary in type and operational structures. The underlying principle of a PCC is that they are established by a sponsor that funds the capital required by the core. The sponsor is also responsible for ensuring other captives operate within the business plan parameters of the PCC. Clients benefit from a PCC as they spend less time and resources on the operational and establishment activities for the program.

When cell captives were first introduced to the market, they were largely in the form of unincorporated cells, where participation and service provider agreements worked to protect the sponsor’s investment rather than through structural protections.

The model for cell captives has evolved to allow more control for cells with the establishment of incorporated cells. Incorporated cells allow cells to even have their own Board of Directors at the cell level.

Regardless of the type, any cell captive structure allows constituents to benefit from pooled administration, but not from pooled risk, as each cell is independent. Sometimes a company will own multiple cells within the PCC, which are all treated individually.

Cell captives are attractive risk funding vehicles because they offer:

• Easy entry. Cell captives are turnkey and can be established quicker and in a more efficient manner compared to standalone captives.
• Economies of scale. Administrative savings are generated as the costs are pooled across cells.
• Professional captive management. Typically, cell owners can be fairly hands-off with built-in program management.

In addition to being a great solution for small and mid-sized companies, cell captives align with a range of other use cases and can be flexible in structure and purpose, for example:

• A captive owner may want to reform a pure captive into a cell captive to allow different Joint Ventures of the parent company to be insured through cells jointly.
• An organization can use a cell captive to separate higher risk areas of the business, without impacting the rest of the captive. For example, each business unit could head up an individual cell. For instance, an organization may view it advantageous for senior management of each of its subsidiaries to own cells that insure the subsidiaries they manage. In this case, each entity, whose risk profiles may vary greatly, would have its own cell that is run independently but still in favor of the parent organization.

Cell captives were once most commonly leveraged by mid-sized companies entering captive funding for the first time and seeking lower barriers to entry and extra assistance. While still a great fit for mid-sized companies, market conditions are driving more and different types of organizations toward cell captives.

The Surge in Cell Captive Demand

In more recent years, we have increasingly seen large multinational organizations entering the cell captive space, in establishing and owning the entire structure as part of their enterprise risk management strategy. In addition to the basic cell captive advantages listed above, other driving factors that may be of interest include:

• A lower required upfront capital investment, as compared to a standalone captive
• Greater ability to meet different business objectives at once, as well as to adapt
  • It is simpler to add a cell to an existing program than it is to set up a new single parent captive for a different line of coverage. On the other hand, it is also relatively easy to “phase out” a cell that was insuring a critical risk two years ago, but that risk or the level of need is no longer there today.
• While all captives offer flexibility over commercial market solutions, cell captives are unique in that each individual cell can be in the form of a reciprocal, a risk retention group (RRG), a limited liability company (LLC), a non-profit, and other types without the need to match each other
• The ability to write third-party risk while leveraging capital and surplus from an additional captive program

Hard insurance market conditions as well as the landscape for emerging risks are making cell captives even more attractive. While often a good fit for more traditional lines, more and more cell captives today are being used for risks like voluntary benefits, cyber insurance, and excess liability. Further, more domiciles have passed cell captive legislation in recent years, opening doors to many.

As with any assessment regarding alternative risk financing, always start with a feasibility study. While cell captives are growing in popularity and advantageous for many, a thorough analysis of the pros, cons, and other contributing factors specific to your organization, its risk and its objectives, is necessary before any decision is made.