Key Factors to Evaluate When Considering a Casualty Group Captive

As companies look for ways to manage volatility in the traditional insurance market, many are turning to member-owned group captives. While the group captive model has proven effective as a risk management strategy for companies across many industries and sizes, it is not always the right fit for every business.

If your company is considering a casualty group captive, these six questions can help you evaluate some key factors in determining whether it's the right fit for your company.

No. 1: Is your company publicly or privately owned?

There's a common misconception that large enterprises and publicly owned companies are too big for member-owned group captives. The fact is that both privately and publicly owned companies have enjoyed successful outcomes in group captives.

While the group captives we support are extremely popular with privately owned midmarket companies, there are many publicly owned members with combined annual premiums ranging from $1 million to $25 million or more. There are also tailored group captive options available to meet the specific needs of larger, publicly owned companies.

No. 2: How large is your insurance program?

Company size or revenue is not generally reflective of an organization's success in a group captive. Instead, your company's insurance premium is a stronger indicator of your potential fit for a member-owned group captive.

Premium size varies across individual captive programs. On the lower end, the casualty group captives we advise typically seek members with combined annual premiums of at least $150,000 in workers compensation, general liability, automobile liability, and physical damage. However, for certain captive programs, companies with premiums as low as $100,000 may be a good fit.

On the high end, premiums often reach $10 million, and we've even seen companies with premiums as high as $30 million succeed in a group captive model. An important factor to know is that, regardless of premium size, in the captives we advise, all members have an equal vote on the captive's board of directors.

No. 3: What industry does your company operate in?

The group captives we support have had successful members from a wide range of industries, including (but not limited to) the following.

• Manufacturing
• Construction
• Trucking/transportation
• Temporary employment agencies
• Retail
• Wholesale/distribution
• Food and beverage production
• Hospitality
• Healthcare services
• Agribusiness
• Oil and gas well operations/services

Today, there are very few industries for which a group captive is not feasible. In fact, in recent years, group captive options for select higher-risk operations have been formed. Generally, very high-risk, specialty industries/operations that pose catastrophic risk are not a good fit.

However, different industries and risk profiles often call for different approaches. To account for this, there are both heterogeneous and homogeneous member-owned group captives.

The primary advantage of joining a heterogeneous group captive is risk diversification. By bringing together member-companies from different industries, heterogeneous captives can spread risk across a broader range of exposures. Homogeneous captives, on the other hand, offer more targeted industry expertise, risk control, benchmarking, and peer-to-peer sharing among companies with similar risks.

No. 4: What is your company's loss experience?

Group captives are generally very well suited for safety-conscious companies with better-than-average loss histories based on their respective industries. Organizations with favorable loss histories are likely to succeed in a group captive.

Companies with average to above-average loss experience are also strong candidates. Many group captive members see substantial improvement over time as they take advantage of the extensive risk management and safety resources and support offered by group captives.

If your company's loss experience is below average, a group captive is likely not a great fit—for now, anyway. Companies with weaker results today can become stronger candidates over time. Captive Resources regularly works with such companies and their brokers to guide them toward improved risk control practices and loss performance over time, offering them an opportunity to qualify in the future.

No. 5: What is your company's approach to safety and risk management?

The group captives we work with take a big-picture and long-term approach to safety and risk management. Companies that find the most success in group captives typically have strong workplace safety and loss control programs. These companies join the captive with solid risk management and safety frameworks already in place, and a willingness to continuously improve and invest in their safety practices.

Above all, companies need to recognize the value of risk control today and commit to continuous improvement in the long term. Short-term improvements made only to gain entry into a captive are not enough to succeed long term in a group captive—it requires sustained effort and appreciation of the captive's value proposition. Group captives offer inherent rewards for this investment, with better performance leading to lower costs and potential return of underwriting profit, in addition to a safer workplace.

No. 6: What is your company's willingness to commit to ownership?

A hallmark characteristic of group captives is ownership. Successful member-companies embrace the transition from passive buyer of insurance to active owner of an insurance company.

This ownership empowers member-companies with increased control over their insurance programs and total cost of risk, but it requires greater commitment than a traditional insurance program. While not overly burdensome, group captive members have regular commitments like the following.

• Attendance and participation in board of directors meetings: typically, 2 per year, lasting 2–3 days
• Risk control workshops: 2 per year, typically lasting 1 or 2 days
• Regular communication: maintaining an active interest in high-level captive operations and the major aspects of your program (e.g., claims oversight)

As the questions above reveal, the ideal captive member profile varies, but there are shared characteristics that tend to lead to the most success. By answering these questions, companies can begin to evaluate whether a member-owned group captive aligns with their risk management goals and long-term strategy.