One of the primary benefits of cell captive arrangements, as opposed to forming a wholly-owned captive insurance company, is efficiency, according to a panel of experts
at the World Captive Forum that was held at the end of January. The panel was comprised of Les
Boughner, chairman of Advantage Insurance Management LLC; Ken Kotch, principal
and national practice leader at Ryan LLC; and Eric L. Severson, president and
CEO of Ascent Medical Management, Inc., a cell participant. The session was
moderated by Nick Frost, president of R&Q Quest Management Services Ltd.
There are both administrative and operational efficiencies.
It is much less time consuming for clients to get into a cell captive as compared to
starting a class 1 captive, explained Ken Kotch. He compared it to buying a
condominium instead of building a custom home. Much of the initial work, such
as capitalizing the core and obtaining the licenses, is already taken care of by
the sponsor. The sponsor is also responsible for audits and other regulatory
items. Operational efficiencies and related cost savings result from the
sponsor arranging for audits and other services to be provided for all the
cells in the structure rather than each cell arranging its own.
While these efficiencies are a major benefit, shortcuts
should not be taken by cell participants in the management of their cells. The
management workload isn’t reduced in a cell, stipulated Les Boughner. In other
words, the governance and management activities are the same as with class 1
captives. Additionally, the tax issues for a cell captive are the same as with any other