CAPTIVE INSIGHT
Employers who self-insure their group medical
plans typically purchase two types of medical
stop loss insurance to help manage the
volatility of the risk:
Specific Stop Loss - insurance attaches on
an individual claim level and reimburses the
employer if individual level claims exceed the
specific attachment point. The typical specific
attachment points can range from $50,000
to $500,000 depending on the number of
employees covered by the plan.
Aggregate Stop Loss - insurance limits the
employer’s liability for the overall claims paid
under the plan during any given plan year.
Aggregate coverage typically attaches at a %
say 120% or 125% of total expected claims.
For a captive to take a risk position within the
above structure it is common to see one or
both of the following:
Captive issues a coverage for a “layer” of
specific coverage. If the employer historically
purchased specific stop loss with a $250,000
attachment point. The captive could issue a
layer of coverage that covers member claims
from $100,000 to $250,000. The employer
would then be responsible for claims under
$100,000.
Captive issues a coverage for a “layer”
of aggregate coverage. If the employer
historically purchased aggregate stop loss at
120% of expected total claims. The captive
could issue a layer of coverage that covers
aggregate claims from 110% to 120% of
expected claims. The employer would then be
responsible for claims up to 110% of expected
claims.
IT IS EVIDENT TO
SEE THAT A WELL
THOUGHT OUT
EMPLOYEE BENEFIT
PROGRAM HAS
THE POTENTIAL
FOR SIGNIFICANT
COST SAVINGS AND
CAN ASSIST AN
ORGANISATION
IN TAKING BACK
CONTROL OVER A
COST CENTER
THAT HAS SEEN
YEAR OVER YEAR
INCREASES OF 5-6%.
Typically, an actuary is engaged to determine
the “sweet spot” where it makes most sense
for the captive to participate considering
premium volumes and expected losses at
different stratifications within the existing
structure. As time goes on and based on
results of the program the captive can decide
to either adjust those layers or expand /
collapse the layers to take on more or less risk.
With the expectation that most commercial
carriers build in a 20-40% risk charge or
cushion into their commercial rates, it is evident
to see that a well thought out employee benefit
program has the potential for significant cost
savings and can assist an organisation in taking
back control over a cost center that has seen
year over year increases of 5-6%. It should not
surprise anyone that conversations regarding
how to better manage and control employee
benefits risk and how a captive solution may
factor into that equation are at the forefront of
all risk management executives’ minds.