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Alternatives to Insurance

There are many alternatives to the traditional risk transfer products discussed in previous sections that will not only succeed in minimizing risks within your organization, but also more effectively address and concur with your financial and operational objectives. Specifically, we will discuss the various characteristics, administration requirements, and legal procedures involved in establishing a Captive insurance program. In making a decision of this magnitude, an organization must analyze all other available Risk Fundingsolutions as well.

Chivaroli & Associates will work with your organization in customizing these risk mitigation techniques to coincide with your needs, and will provide the necessary support to ensure that all your questions and issues are addressed throughout the entire process.

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Captives

A captive is a parent-owned subsidiary that acts as an insurance company, which covers the risks of its parent organization(s). Generally speaking, it is a formalized, regulated, and disciplined method of self-insurance that better highlights the need to control losses and associated costs.

Insurance captives can take many different forms, depending primarily on participant objectives and financial restrictions. Some of the more frequently used arrangements include single parent captives, where ownership resides within one organization, rent-a-captive in which members join a previously established captive, and segregated portfolio companies, where members essentially purchase a “cell” or “stake” in the captive and are responsible only for their own activities.

Even though the regulatory structure may vary from one captive to the next, the following primary components remain consistent across the board:

Financial – premiums, capital, and investment income
Operational – policy issuance, premium collection, claims management, operating expenses and dividend allocation
People – board of directors, captive officers, management company and service providers

The most critical aspect in developing a captive insurance company is determining the overall quality of the parent organization. This entity must have financial strength, a senior management staff fully committed to a proactive risk management agenda, a long-term view of risk finance, a predictable loss experience, and a vested interest in reducing loss.

If you are interested, we will discuss benefits and potential negative aspects of participating in a cell and conduct a feasibility study. Alternatively, we can assist in the formation of other types of captives, such as a single parent, group, or Risk Retention Group.

Risk Funding

Effective risk financing is the achievement of the most affordable coverage for an organization’s exposures, while assuring post-loss financial resources are available to cover these obligations. This overall process consists of five steps:

Identifying and analyzing exposures
Analyzing alternative risk funding techniques
Selecting the best risk funding technique(s)
Implementing the selected technique(s)
Monitoring the progress and success of the selected technique(s)

Aside from establishing its own captive insurance company, an organization may also look to implement insurance rating plans such as retrospective rating and large deductible or self-insured retention programs.

Generally, the appropriate program will depend primarily upon an organization’s current and historical exposures along with its loss history. Chivaroli & Associates utilizes its in-house analytical resources to identify exposures by type, location, cause, frequency, and severity. In addition, we also use the organization’s historical claims experience to assist in trending and developing current litigation. Each of these studies is then assigned a certain level of importance and incorporated within the overall analysis of the optimal program to pursue.

It is also important to consider current trends and developments in the risk transfer or insurance marketplace as they will influence the financial benefits of implementing an alternative risk funding program.

Chivaroli & Associates will be your partner throughout this entire process, from beginning to end. We will represent your best interests in our negotiations and analyses, placing your organization’s needs and objectives first above all other factors. An alternative risk funding program may not be the most advantageous avenue to pursue; however, all options must be given an equal amount of consideration in order to make an informed decision.

Alternatives

Alternatives to Insurance

Captives

Risk Funding

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