Captive Insurance Provides Risk Management, Substantial Financial Benefits

In the world of insurance, a new tool for financing risk has emerged, known as captive insurance. A captive, much like traditional insurance, is a means of covering various risks, but with a key difference - the risk must have occurred in the past, enabling actuaries to assign a price to it.

JM&A Group Dealership Services, a subsidiary of Mercury Insurance, has recently introduced a health captive program, aimed at providing dealerships with a more predictable underwriting process and potential cost savings of up to 30%. This program, which is a group captive for health insurance, is designed to be employee-centric, offering guidance and support for employees regarding scheduling care and access to telemedicine.

However, the suitability of creating a captive insurance program varies for each dealership. For single-point dealerships or groups with a few rooftops spending up to $250,000 on insurance, assessing the feasibility of a captive may not be cost-effective. Larger dealerships, on the other hand, may find benefits in forming a single-cell captive insurance company.

To be eligible for the health captive, a dealership must have a minimum of 75 employees. Group captives, which have a lower cost of entry compared to single-cell captives, are suitable for dealerships with up to 1,000 employees, while larger dealerships may opt for single-cell captives.

The formation of a captive allows a dealership to potentially keep the underwriting profit that an insurance company usually retains. This, along with the ability to craft a policy with the proper capacity to address specific issues, such as business interruption insurance, can lead to significant cost savings for dealerships with a lower-than-average claim history, potentially recouping up to 40% of insurance spend.

Bill Christie, director of JM&A Group Dealership Insurance Services, emphasises that the health captive gives dealerships control over the design and structure of their health care plan. However, it's important to note that the repayment of benefits from a captive program might take several years, and it may not be suitable for dealerships with a history of claims.

Each captive is unique, and the process of setting one up, including a feasibility study, can cost between $75,000 and $100,000. For a dealership in Florida, business interruption insurance needs to look forward to the busiest months, not backward to the slower months, to make a significant impact on reimbursement.

In conclusion, while captive insurance programs offer dealerships more control over their insurance policies and potential cost savings, it's crucial to consider the feasibility and suitability before making a decision. The JM&A Group's Health Captive Program presents an opportunity for eligible dealerships to reap these benefits, offering a group captive solution for health insurance.