Captive insurers allow employers to cut their administrative costs, invest their own cash flow and protect themselves with inexpensive reinsurance just the way large insurance companies do, he says. Employee benefits has been the largest pool of insurance-related dollars that has not been available to this strategic system. As a result, employers have been losing money on employee benefits administration for years. The Columbia Energy ruling opens up the floodgates for new financing possibilities, he says. The ruling also enables new management possibilities with integration of benefits, he adds.
Captives are at their best when they are used as a platform for greater control of risk.
For years, smart employers have used their captive insurance companies as a way to charge back the cost of workers compensation and other insurance benefits to profit centers and to enforce safety and loss-control programs. Though the Columbia Energy ruling does not call for health-care benefits to be part of the captive strategy, Moody believes they will follow eventually at the request of employers. Ultimately, health-care benefits will have to be part of the package as the largest component of employee benefits costs. Executing a captive for benefits strategy won t be easy, however. Foremost among the qualifications is that employers must use the structure to increase or improve the value of their benefits to employees.