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Employee Benefits Through Captives Increasing

Captive insurance has long provided numerous advantages to business owners. This alternative to the traditional insurance market offers cost-effective and comprehensive coverage along with flexibility and improved management oversight. While captive insurance offers a myriad of insurance coverages and limits, businesses around the world have typically not funded employee benefits risks through their captives. That may be changing, according to insurance industry analysts, who predict explosive growth in this area in the coming years.

Figures from the World Captive Forum

In January 2019, a group of captive insurance experts held a session at the World Captive Forum in Miami, Florida. The educational session, entitled “Global Employee Benefits”, revealed interesting trends in regard to employee benefits (EB) risks. As of 2019, with over 7000 registered captives around the world, figures showed that:

  • Over 100 global businesses are fronting employee benefits risks.
  • 35 of these captives are based in the United States.
  • The first U.S. based captive fronting EB did so in 2001.
  • The first retirement plan funding through captive took place in 2009.

While the concept of funding EB through captives is not new, it is only in recent years that the concept has gained traction among business owners. In the United States, employers must receive approval from the Department of Labor to fund benefit risks like long-term disability, accident, medical, and group term life insurance. So far, just under three dozen U.S. employers have received approval. The success of early adopters has increased interest, driving growth in this EB funding model.

What are the Benefits in Funding Employee Benefits Risk with Captives?

Captive insurance solutions are known for their business-oriented benefits. The ability to obtain customized and flexible insurance coverages has long been captive’s calling card. More importantly, as a response to ever-climbing premium costs and declining coverage options in the traditional market, captives have enjoyed tremendous growth over the past two decades.

For EB, these cost-effective advantages carry over. Employers will no longer have to pay premiums or fees to commercial insurance entities. This results in significant cost savings when funding benefits programs. In years with low claims activity, profits may be retained by the captive sponsor, further reinforcing interest among business owners. As with any self-insurance model, EB funding is more accurately managed, particularly when it comes to risk management programs and the processing of claims. Finally, captives enjoy certain tax advantages.

The biggest issue facing business owners, according to captive insurance experts, is the risk tolerance a business has. Employers often have concerns about how much EB risk their captives will assume and how much can or will be reinsured through traditional insurance carriers. Once business owners evaluate their risk tolerances, captive insurance may serve as a viable and cost-effective solution. Employee benefits funding through captives is a path forward to many business owners around the world, offering advantages and cost savings that will continue to attract interest well into the future.

About Caitlin Morgan Captive Services

Caitlin Morgan Captive Services provides clients with captive insurance solutions supported by years of experience in establishing the successful formation and implementation of a wide range of captives. To learn more about how we can help you, please contact us at (855) 975-4949.