THE CAPTIVE JOURNEY
Hello from the captive front. As we head into the final months of 2014 there continues to be a tremendous amount of enthusiasm surrounding the captive programs offered through Cottingham & Butler. This enthusiasm is centered around the solid partnership that is able to be built between the owners of the captive and the service providers to the captive. This partnership creates an environment that is purely focused on how to prevent losses and to effectively manage and resolve those that do occur. It also fosters a learning environment where the owners of the captives are taught the ins and outs of the insurance industry in order to both understand and to manage taking risk. The key components in the learning process are as follows:
Financial – the insurance industry has a unique accounting method as it is faced with trying to determine what the potential liability are tomorrow for the premiums that are written today. The term IBNR (incurred but not reported) is often tossed around regularly in these discussions. IBNR is the potential liability that insures face and could include claims that haven’t been reported yet, claims that have been reported, but increase in value and claims that were once closed and are re-opened for additional payments. The financial results of the captive are tracked based on underwriting (policy) years and also individually for each owner. The financials often take a few glances before captive owners begin to feel like insurance accounting experts.
Underwriting – the captive owners quickly gravitate towards underwriting. This often relates to the risk profile or acceptability of future risk sharing partners. This becomes a very important factor in the overall profitability of the captive. Each captive member is able to review the risk profile of potential new partners and to ask questions that might impact potential membership. If only the “best” underwriting risk are allowed into the captive it makes the rest of the captive run pretty smoothly.
Claims – the captive owners are quick to understand this aspect of the captive as most have had involvement with claims prior to joining a captive. The ability to be involved in all aspects of the claim process is a key motivator to many and can significantly impact the overall results of the captive. The captive owner is usually able to help yield a better result by being in constant contact with their adjuster. They also come to understand the many rules and regulations that have to be adhered to and that can often get in the way of achieving the desired result.
Safety – the captive owners are also quick to understand that if the upfront work is being put into safety that it helps to reduce the number of claims being incurred thus increasing the profitability of the captive. The captive owners feel obligated to their fellow partners to uphold their end on the commitment to safety. This is measured, monitored and communicated to the entire captive group to help foster the overall “safety culture” that the owners envision. This safety culture continues to evolve for each of the captives as they see opportunity for continued improvement.
The above are just a few of the many areas that captive owners tend to focus on in order to become knowledgeable about running a captive insurance company. The goal that each captive has is to grow smartly, to be aggressive in the management of claims and to continue to improve upon the safety culture that is expected from each captive owner. To me, this is the fun part of working with captive owners. I get to learn more about their business and I get to help them understand how the insurance industry works.
Mark Fitzjerrells Sr. Vice President of Captives & Programs Cottingham & Butler, Inc.