Does Your Workers' Compensation Plan Fit "Just Right?"
4 Factors to Determine if a Group Captive Works for You
Ages ago, staffing firms struggled to find Workers’ Compensation (WC) insurance programs to insure them “just right.” Back in the day, staffing firms were faced with insuring themselves via a state fund or assigned risk pool. But thankfully, times have changed – a lot.
These days, the clear majority of staffing firms have the luxury of choosing various types of available WC insurance programs (from guaranteed cost, to large deductibles, to self-insurance, to retros, to PEO arrangements and more), as well as markets willing to insure them.
That said, as a staffing firm owner, it’s wise to sit down with your insurance consultant and weigh the various pros and cons of each type of program. After weighing the pros and cons, the ultimate goal is to be in a solid position to decide which program is best for your organization.
Options presented are usually based on the following factors:
- Premium size
- Class code and industry mix (are your clients light industrial, IT, medical, retail, construction, etc.)
- State mix
- Claims history
- Tolerance for risk
- Financial strength
- Risk management program
If you are a firm that generates at least $250,000 per year in WC premium and have good claims history, it may be the right time to consider a loss responsive plan.
When considering a type of loss sensitive plan, a group captive may be the right fit.
Several parameters can help determine whether a group captive is a viable option for you. These include:
- Your firm should be financially stable and have good claims history.
- You invest a considerable amount of effort into your risk management program (namely loss prevention/safety).
- You are financially secure and can demonstrate your ability to pay for claims and secure future losses.
- You are comfortable sharing risk, in exchange for the potential return of unused loss funds (predicated on good claims experience, and subject to group losses).
There are a variety of group captives in the marketplace. Captives are generally classified as either homogenous (open to only members of the same industry), or heterogeneous (open to members from a variety of industries).
When weighing your captive options, you should be mindful of each captive’s risk sharing component, assessments, security requirements and an exit strategy in the event a captive doesn’t turn out to be the right fit for you.
Although captives can be a valuable strategic risk management tool for many firms out there, they are not the best approach for every organization. For some staffing profiles, they may not be feasible and could ultimately cost more than traditional insurance. That’s why it’s important to discuss the various options available in the marketplace with your insurance advisor, do a little captive homework on your own and determine which insurance “shoe” will fit you the best.
For more information regarding group captives, contact a member of the ‘A’ Team!
- Exploring the World of Insurance Captives
- 5 Key Elements to Group Captives
- Be Your Own Insurance Boss
- WC Deductibles and Captives: A Match Made in Heaven
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