Captive Coverage Options

A captive insurance company is the most structured form of self insurance. Captives may insure most any risk that involves uncertainty of loss.

Venture Captive Management, LLC tailors its coverage to meet the owner’s needs. Captives may provide coverage for previous claims, for losses that exceed policy limits or losses that involve circumstances not covered by regular insurance.

VCM captives are established so that owners can add multiple lines of business if desired. Steps are taken to insure that all lines of business meet regulatory compliance.
 

Commercial General Liability
Commercial general liability is a line of business that may be insured in a captive. The coverage limit is matched with the insured’s willingness and/or ability to pay the premium and capital required to fund the risk assumed. A captive may be tailored to fit the economic realities that owners must meet without making them a target for plaintiffs’ attorneys.

The captive owner may also elect to fund a retention or large deductible. As premiums and interest accrue over time, this retention/deductible can be increased to help the captive owner retain an ever increasing accumulation of premium dollars and tax deferred interest.

 

Professional Liability
Captives often provide the captive owner protection against claims and suits arising out of or resulting from acts or omissions that fail to meet the standard of professional care and conduct. Captives work very well at providing this insurance protection by funding the risk adequately and holding the premiums and capital paid in a tax deferred status as a reasonable and prudent loss reserve.

Losses and claims remain under the control of the captive owner who determines the claims strategy and loss philosophy. The insured retains the use of the money otherwise lost when paid to a conventional insurer and retains the profit that develops over time.

 

Medical Malpractice
Medical malpractice or medical professional liability insures against errors, omissions or acts committed by healthcare professionals. The medical professional liability captive structure creates a protected asset that grants control to the captive owners to reduce their cost of medical professional risk and earn a profit.

Medical professional liability captives must meet the requirements of the Health and Human Services Commission Provider Reimbursement Manual Chapter 15, part 2162 under Medicare and Medicaid rules. Any healthcare provider that receives Medicare or Medicaid reimbursements must satisfy these requirements for an alternative risk structure or “limited purpose company.” Captives managed by Venture Captive Management, LLC meet or exceed these requirements and meet full compliance in both the insurance and HHSC jurisdictions.

 

Workers Compensation
Workers compensation is statutory insurance—required in every state except Texas. The normal process for covering Workers comp in a captive requires a policy issuing or “fronting” carrier to write the coverage. The captive owner reinsures the risk of the issuing carrier and cedes the premium to his or her captive. The captive owner can further limit his or her risk by reinsuring a portion of the captive’s risk with a specific and aggregate stop loss attachment. As the captive grows, it will take more and more risk.

Another approach sometimes employed is for the policy owner to retain a significant amount of risk on a policy issued by a standard commercial carrier. The owner then creates a captive to insure this retention. The usual minimum retention is $250,000 per loss with a $750,000 annual aggregate.

 

Employee Benefits
Employee benefits have become a huge expense and liability for employers. Captives may help alleviate this problem. The United States Department of Labor (DOL) governs and sets forth employee benefit plan requirements. For employers with over one hundred employees ERISA requirements attach.

The DOL restrictions do not apply if the insured/owner creates an “aggregate stop-loss” program which can be part of the coverage insured in a captive. This allows a portion of the self-insured retention and expenses to be funded along with the excess coverages as the “aggregate excess.” The insured still is required to fund a realistic portion of the self-insured fund within a trust as required by ERISA under the 5500 filing. In such a plan, there is no requirement for a fronting carrier—only a recognized Third Party Administrator and Excess Stop Loss carrier.

Many employee benefits other than medical health benefits are not regulated by the DOL. These benefit premiums may flow directly to the captive.

 

Large Retentions
Venture Captive Management, LLC (VCM) captive owners may elect to fund policy retentions in one or more lines of business. As the funds set aside for the retention accumulate, the owner may increase the retention. This allows the captive owners to begin to grow funds in the captive. It is especially beneficial to companies that have quality risk management programs.

When using retentions, the issuing company retains their control of the process. The carrier charges fees associated with the retention and will often charge a premium for specific and aggregate stop loss that may be above the actual market cost. Despite these costs, using retentions is a good beginning point for captives.

 

Excess Coverage
Captives may fund excess coverage. They may attach over a primary insurance policy and provide additional limits of coverage. The excess policy may include a “drop” down provision that provides coverage for loss not covered by the primary insurance carrier and it may also reinstate the policy aggregates exhausted or impaired by claims in primary insurance policy. A similar unique application is to have the captive provide excess protection for “tail” or extended reporting premium options purchased under traditional claims made insurance.

Excess policies also may cover losses that exceed a self insured retention. The captive owner’s remaining traditional insurance program may have a corridor deductible between layers of coverage. The captive may provide coverage for the uninsured corridor deductible.

Excess coverage may also fund limits or aggregates above what the captive owner’s insurance program provides. This approach enables the captive owner to secure additional limits funded through his captive and raises the limits already purchased by a traditional insurance policy.

 

Compliance Policy
Insurance may be created for any exposure that constitutes an actuarially supportable risk of uncertainty. However, not all risks exposures are insurable through traditional insurance markets. One of these exposures is failure to comply with any State, Federal or other agency requirements. If this failure to comply could cause a financial burden to the captive owner, insurance could be created and insured through the captive.

The captive may manuscript and tailor the coverage to match the owner’s needs for protection. Coverage is on an indemnification basis or the owner may elect to fund the premium as a pay on behalf of basis. The entire design must meet actuarial assumptions and include reasonable and prudent funding.

 

Extended Reporting
Extended reporting or “tail” coverage is needed when a claims made policy is terminated for any reason. This coverage provides insurance for claims that occurred during the policy period but weren’t yet reported when the policy was terminated.

This additional coverage may be purchased from the insurance company or through the captive. Or the insured may supplement extended reporting bought under a traditional insurance policy by providing reinstatement of aggregates or additional limits of coverage above the “tail” purchased from a traditional insurance carrier.

 

Coverage Gaps / Prior Acts
Some problems many captive owners encounter are situations where they may not have had prior insurance; they have had lapses in their prior insurance or the insurer providing the prior coverage has bankrupted. The captive may fund these exposures and/or insure gaps by creating a policy to provide this protection.

Prior acts coverage involves a claims made liability policy. Claims made policies have a retroactive date which is the earliest date to which the policy will respond. If the captive owner wants to move the retro date further back in time he or she can fund this additional exposure. (S)He may even choose to remove the retro date by funding the expected losses.

 

Directors & Officers Liability
Captive owners may provide Directors and Officers Liability coverage through their captive. Traditional insurance often limits the grant of coverage and provides severe limitations on post claim loss adjustment, defense and indemnification. Side A Coverage Form can be written through the captive on a stand alone basis to benefit individual directors. The captive can also insure acts not covered under the traditional D &O policy or provide additional limits of coverage over a traditional policy form.

Captive owners have discovered that Directors & Officers liability insurers will often seek reimbursement and compensation for expenses incurred or losses paid from the their insured. The captive approach helps reduce this occurrence if properly structured and reasonably and prudently funded.