RIMS 2016

Captives See Growth for Terrorism Risk

Captives can cover risks excluded from conventional terrorism policies and the potential gap left by the Terrorism Risk Insurance Act.
By: | April 13, 2016 • 2 min read

An advance look at the “2016 Marsh Captive Benchmark Review” revealed a substantial growth in the number of captives targeted to terrorism coverage.

In the last three years, nearly 40 captives by Marsh clients were created to cover risks excluded from conventional terrorism policies and/or to provide access to reinsurance to cover the potential gap under the Terrorism Risk Insurance Act, said Ellen Charnley, San Francisco-based managing director, captive solutions, during a RIMS luncheon session on April 12.

“That’s a big growth area,” she said.

In addition, more than 20 other captives were formed to address international terrorism risks, she said.

Typically excluded perils include nuclear, biological, chemical and radiological risks, as well as cyber terrorism, and the captives provide access to the government backstop.

Other non-traditional coverages that are seeing captive growth are medical stop loss, cyber, international employee benefits, political risk, supply chain and crime, she said.

“We see a continued growth in non-traditional coverages,” Charnley said.

Chris Lay, London-based president, Marsh captive solutions, said the brokerage is seeing “a lot of activity tailoring captive programs to address cyber risks.”

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In addition to evolving cyber risks and terrorism, other top risks being addressed by captives were catastrophic earth/weather events, economic downturn and political unrest, Lay said.

The top industry sectors that form captives remain financial institutions; health care; auto/manufacturing; retail/wholesale; and communications, media and technology.

However, Charnley noted, if premium dollars were used to rank the industries, communications, media and technology companies would probably rank second, below financial institutions.

Top-ranked unique or emerging industries forming captives were construction; energy; real estate; education; and sports, entertainment and events, she said.

For construction, the increased number is probably the result of improved economic conditions, she said.

For education, it’s more likely the reason is to seek access to reinsurance programs, said Art Koritzinsky, managing director, captive solutions, in New York.

He said Marsh expects to see continued growth in the number of 831(b) small captives, which have increased by 35 percent.

“That’s where a lot of the growth [in the captive market] is,” Koritzinsky said.

In December, the IRS rules regulating 831(b) captives increased the limit on direct premium from $1.2 million to $2.2 million and removed the ability of such captives to be used for estate planning, among other changes.

As for predictions, Marsh anticipates increased growth of captives for international employee benefits; terrorism, small captives; non-traditional risk; and in emerging markets such as Latin America and Asia Pacific.

They also anticipate companies beginning to use cash surpluses in captives for sophisticated investment strategies.

Marsh manages about 1,250 captives worldwide, with about $42 billion in premium. About 1,000 captive owners participated in the benchmark survey. Final results will be released in May.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]