Owen Taylor is the CEO of Owen-Dunn Insurance Services – a full service business insurance brokerage. The company focuses on Group Captive Insurance, which is an insurance alternative that allows well-run companies to turn insurance premiums into assets. In 2003, five Owen-Dunn clients joined together to form the Presidio Captive, which has grown to more than 250 members. Owen-Dunn has assisted more than 100 business gain entrance to numerous Group Captive Insurance Companies. Collectively they have amassed over $40 million in equity from unused insurance premiums. Owen Taylor speaks to agencies and industry groups throughout the United States on the benefits of Group Captive Insurance.
You have become a nationally-recognized expert in Group Captive Insurance. What drew you to focus on this insurance niche?
I first learned about Captive Insurance at a Group 500 national brokerage meeting about 20 years ago. I loved the idea immediately. Providing an option for best-in-class businesses that was different than standard insurance intrigued me. I liked the idea of having something different—something better—to present instead of just quoting the same products as every other broker and hoping our quote would be the best.
I learned quickly that with Captive Insurance, our efforts helping to minimize our clients’ claims would result in a direct financial benefit to them in the form of lower premiums and return of premiums through dividends. Owen-Dunn provides in-house services like human resources coaching, claims management support, and on-site safety inspections for our clients which reduces their claims. I like that the Captive model provides us and our clients a type of ruler to measure the success of our efforts to reduce claims by focusing on safety and corporate culture. Success is measured by our clients’ build-up of equity.
Lower premiums that can be returned to the business -this sounds too good to be true. Could you tell us how it works?
The standard insurance market is based on the law of averages. Better run businesses with few claims subsidize those with more claims. Group Captive Insurance is a way for the good businesses that are committed to safety and a positive company culture to group together and form their own insurance company. Since only businesses that have demonstrated they are well-run and safety-focused qualify to join, everyone’s exposure is less than in the standard market. This results in lower premiums for every Captive member business.
The Group Captive member businesses collectively share the basic costs of the insurance company, like claims management, loss control, policy issuance and reinsurance. About 40% of their premiums cover these expenses. The remaining premiums, about 60%, are held in each business’ separate claims fund account. When few or no claims occur, most or all of those premiums are returned to them in the form of dividends.
Additionally, the premiums for each member business are determined by actuaries based solely on their claims history, not insurance company averages. Therefore, each low claims year compounds to result in lower premiums, sometimes dramatically lower premiums. We’ve seen unprecedented levels, like nine cent workers’ comp rates in an industry where two dollars is typical. We have clients driving semi-trucks that are paying less than $350 a year per truck. We have higher risk businesses paying a 10th of what they would normally pay for workers’ compensation and general liability. There are virtually no boundaries as long as the company is committed to keeping claims down.
Are Group Captives risky? What happens when a business has a catastrophic claim?
The best and worst case scenarios are outlined for every member up front, so there are never any surprises. There is a small amount of risk sharing in the Captive, typically about 5-10%, which helps in keeping everyone’s premiums low. The Captive covers all member claims up to a specific limit (typically $350,000 to $500,000) and contracts with a standard insurance carrier like AIG, Chubb, and Hartford to pick up all claims over the Captive limit. This structure protects the Captive members from catastrophic claims. Additionally, the reinsurance company issues an insurance policy that looks exactly like any other standard insurance policy so it meets all insurance requirements.
What else should our readers know about Group Captives?
Well, beyond the primary benefit of lower premiums that are returned if a business has few claims, there are a number of other advantages to Group Captive Insurance. First off, since each business is an owner of the Captive insurance company, there is complete transparency. Everyone knows where every penny of every dollar of their premiums are spent: how much goes to paying claims; how much goes to issuing the policies; how much goes to buying the reinsurance; how much goes to claims management; and how much goes to their broker. Every penny is accounted for.
Greater control over claims management is another advantage to Captive Insurance. If a Captive member wants an investigation because they are not convinced a claim is legitimate, they can have one done. Alternatively, the Captive member can decide if a claim should simply be settled and closed out quickly. With advice from the Captive Management Company, the member’s attorney and insurance broker, Captive members make these decisions in their best interest.
Finally, Group Captive Insurance takes all the unpleasant surprises out of the annual insurance renewal process. Captive members are no longer subjected to the ups and downs of the insurance market. Since their premiums are determined by actuaries all that is relevant is their claims experience. Therefore members of Group Captives focus on keeping their claims to a minimum. They do this by ramping up their claims management, enhancing their safety programs, strengthening their claims investigations and putting extra focus on their corporate culture. All these things are proven to result in lower claims costs.
Group Captives sound like a very attractive alternative to traditional insurance. How does a business know if they are likely to qualify?
It is relatively simple to self-diagnose whether or not a captive may be a good option. First, a business needs to be paying a minimum of $100,000 in premiums for their Workers’ Comp, Auto, and General Liability insurance combined. At this level, group captive insurance begins to make sense.
Next, the company needs to review the last five years of claims history. If in no single year the claims exceed 40% of the total premiums paid out, then a group captive is likely a good fit. If the claims costs do exceed 40% of premium in one year, or perhaps even in two, but the remaining years show very low claims costs, a Group Captive may still be a beneficial option.
Finally, it is important for the company to be financially strong. Every member needs to be able to meet their claims obligation. As I have already explained, every member knows their best and worst case scenario up front, so the business owner is never surprised.
If there are a lot of Captives, how does a business owner identify the best option for their company?
This is going to sound self-serving. It is really important to work with a broker experienced in the Captive Insurance industry. Many traditional insurance brokers dissuade their clients from Captives, either because they don’t understand them or because brokers typically receive lower commissions on captive business. There are many good brokers across the US who understand captives. An experienced broker will know which Captives will be the best fit for a business.
When considering a broker, it is critical that they provide in-house services. Remember, for Captive Insurance to deliver the maximum benefits, claims need to be minimal. An insurance broker must be a partner in building a safe worker environment, ensuring regulatory compliance, and creating positive workplace culture. A business owner should quiz their broker on what services they provide. Over the long run, a solid company commitment to safety with support from an experience broker will result in significant cost savings and maximum asset accumulation.