How Captives and Program Solutions Can Benefit Policyholders amid Social Inflation and Rising Insurance Prices: Risk and Insurance

As markets tighten, policyholders in all sectors may experience large premium increases in all lines of business. In recent years, as the insurance industry has tried to balance its books in the face of inflation and the consequences of the COVID-19 pandemic, rate increases have become the norm, even for companies with a good track record of losses.

Take, for example, the commercial auto and workers’ compensation sectors. The talent shortage in trucking has caused companies to hire new, less experienced drivers who may be more likely to have an accident. Additionally, insurance companies consider the impact of social inflation on jury verdicts if a claim ends up going to trial.

The workforce mix has struggled with similar talent shortages. As industries from construction to manufacturing struggle to attract and retain workers, they may face staffing issues and younger, less experienced workers, which can lead to increased injuries.

“It’s important to take a step back and look at what’s happening broadly in the world,” said Alfred Bergbauer, head of multinational services, captives, programs and TPA at The Hartford.

Frustrated with increased premium spending, many companies are considering captive solutions and programs for some of their exposures. These solutions help businesses get the protection they need at a lower rate than traditional insurance policies.

Major premium increase? Consider these 3 different types of captive insurance solutions

Hard markets often draw attention to captives as a risk transfer solution. Brokers and agents may suggest that their policyholders use captives to retain some of their exposures, especially if they see significant increases in premiums.

“Captives are a hot topic, and it’s on everyone’s radar. Brokers talk about it; agents talk about it,” Bergbauer said.

“We spend a lot of time with our captive managers, researching clients to really understand what a group needs or what an individual and single parent captive might need.”

Here are three different types of captives companies can consider if they are looking to insure some of their losses themselves.

1) Single parent: “Lighthouse captivity”, so to speak, a single-parent captive, is when a single parent company insures some of its own risks.

When setting up a captive, a company will work with actuaries to estimate its losses within a customer-funded retention layer through a captive. The insurer provides traditional captive retention insurance and issues policies in the jurisdictions where the parent company operates.

“Rather than exchanging dollars with an insurance company, you keep the working layer of the losses yourself,” Bergbauer said.

2) Group: As with a single-parent captive, group captives self-insure part of their risks. The difference is that a group of companies, rather than a single company, works together to set aside risk transfer funds.

The companies in a group captive may share similar risks, such as a group of architects coming together to insure some of their exposures themselves, or they may come from different industries but share similar risk management philosophies. Members often go through a thorough screening process to ensure they are a good candidate.

“There is a solid verification process,” Bergbauer said. “They want to look at their operations, they want to look at their safety procedures, they want to look at driver training and safety records and really, really understand that this is a company that operates at the highest level of safety. and care in their industry, because they don’t want a bad trader to introduce more frequent or more severe losses to the captive.

Group members also share security and loss control strategies with each other. Many have a risk manager for the captive, which can help facilitate best practices and the sharing of ideas.

“When it really works, it’s powerful, and it’s a self-contained cycle of high-value risk management and feedback on how to be a better operator in your business,” Bergbauer said.

3) Agency: An agency captive is formed for the clients of a specific agent.

“The most successful agency captives are made up of clients who want to actively use loss information and proximity to the claims process to develop improvement and risk mitigation plans to make their operations and products safer,” said Bergbauer.

Programs: what are they and how can they benefit policyholders?

Another solution to which policyholders can turn in the event of hardening of the markets is programs. The programs offer tailored insurance solutions for moderate to high risk exposures that may be difficult to place, or those that require specialist underwriting. These products are offered on a guaranteed or loss-sensitive cost basis to meet the risk appetite of individual clients.

“We have the ability to offer more flexible terms and conditions in a tough market, more stable rating and in some cases increased capacity to best-in-class traders in these lightly contested risk classes,” Bergbauer said.

The Hartford offers more than a dozen open-access and administered programs serving industries ranging from swimming pool and spa to railroad contractors and security guards. Open access programs are directly accessible to all agents, while administered programs are available through a specific program administrator or managing general agent.

With each of its programs, The Hartford’s dedicated underwriters learn as much as possible about their niche so they can properly evaluate its exposures. Pool and spa underwriters, for example, undergo training to become certified experts by the National Pool and Spa Authority. Their high level of industry expertise allows them to stay abreast of emerging risks and provide a high level of service to their clients.

“They often have the same background as their clients,” Bergbauer said. “In each of these programs, our underwriters have immersed themselves in these businesses and they attend trade association and education events.”

Partner with the right insurer

Whether a company is considering a captive solution or programs, partnering with the right insurer is key to success.

The Hartford has over 30 years experience in the Captives space. He works with his single parent, group and agency clients to ensure they are using the best risk management strategies to help keep their insurance costs low.

One of four insurers with a certified industrial hygiene laboratory, The Hartford conducts occupational health and safety examinations and air quality and product testing with its customers – and this is not just one of the risk management services it offers.

“We go very far in the operations of our customers. We have resources to share with them,” Bergbauer said.

On the program side, Bergbauer said, the company is seeing double-digit increases. Its dedicated underwriters are committed to understanding the industries and providing innovative insurance solutions. “Our teams have identified an opportunity in the market.”

Captive and program clients benefit from The Hartford’s claims management services. Its claims professionals engage deeply with customers post-disaster to help restore business integrity and to think through all risk management strategies.

“The Hartford has a strong in-house claims handling operation. We can offer that to programs, and we can offer it at a captive level,” Bergbauer said.

The claims team is aided in its efforts by the company’s proprietary risk management information system analysis tool, called “Track Risk Explore Opportunities” or “TREO”. TREO gives policyholders insight into their causes of loss so they can better understand the causes of their losses and prevent them in the future.

Says Bergbauer, “We can offer nut soup services for our customers.”

To learn more, visit: https://www.thehartford.com/commercial-insurance-agents/captive.

Certain coverages vary by state and may not be available to all companies. All Hartford coverages and services described on this page may be offered by one or more P&C insurance company affiliates of The Hartford Financial Services Group, Inc. In Texas, Arizona, New Hampshire, Washington, and California . [In Texas and California, the insurance is underwritten by Hartford Accident and Indemnity Company, Hartford Casualty Insurance Company, Hartford Fire Insurance Company, Hartford Insurance Company of the Midwest, Hartford Lloyd’s Insurance Company, Hartford Underwriters Insurance Company, Maxum Casualty Insurance Company, Maxum Indemnity Company, Navigators Insurance Company, Navigators Specialty Insurance Company, Property and Casualty Insurance Company of Hartford, Sentinel Insurance Company, Ltd., Trumbull Insurance Company and Twin City Fire Insurance Company.] and its P&C insurance affiliates, One Hartford Plaza, Hartford, CT 06155.

The Hartford Financial Services Group, Inc., (NYSE: HIG) operates through its subsidiaries, including the underwriting firm Hartford Fire Insurance Company, under the The Hartford® brand, and is headquartered in Hartford, CT . For full details, please read The Hartford’s legal disclaimer at www.thehartford.com.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in conjunction with The Hartford. The editorial staff of Risk & Insurance played no role in its preparation.

The Hartford is a leader in property and casualty insurance, group benefits and mutual funds. With over 200 years of expertise, The Hartford is widely recognized for excellence in service, sustainability practices, trust and integrity.