How to use captives to manage employee benefits risks

By recent counts, more than 7,000 captive insurance companies exist globally, used primarily by multinational companies to take control of various risks. And yet, fewer than 200 of them are used to write employee benefits (EB) risks.

Which means less than 3% of captives are writing EB risks like life, accident, disability (both short- and long-term) and medical.

Although risk managers may be familiar with the benefits of a captive program for traditional and emerging P&C risks, the advantages of writing EB business into a captive present an intriguing opportunity for multinationals – particularly those with an existing captive program for P&C business.

If you look at it from the captive’s perspective, having additional lines of risk unrelated to P&C can be a great way to diversify, something that’s particularly beneficial in the harder commercial insurance market we’re in now.

But the benefits of captives go beyond risk diversification. Historically, using a captive was seen as the best way for a multinational to retain underwriting profit and get the best value from its EB. As the ultimate risk-bearer, the captive sets pricing and retains any underwriting profits.

Recently, though, there’s been a change in thinking. Employers now realize their captives aren’t just a way to save money and diversify risk. They can also help them offer team members more and better benefits.

Rather than retaining any profits, employers are reinvesting the savings into their workers by offering wellness programs, removing exclusions (like those relating to pandemics) and covering things that may not be possible through local underwriting – for example coverage for gender reassignment or same-sex partners.

The timing’s good because employees are coming to expect more from their benefits packages and employers are competing aggressively for talent.

Recent research on Canadian employees from the Conference Board of Canada and Telus Health finds an 83% gap between what workers say they need and what they are actually receiving from their benefits packages. What’s more, between 33% and 59% say they’re willing to leave their jobs if they think their benefits aren’t good enough.

One example of this is growing demand for enhanced medical benefits.

“Employers have undoubtedly become…interested in the additional services and coverages they can offer their people,” notes Bill Papadimitriou, regional vice president of business development at Desjardins.

“From dental care, critical illness and disability, to wellness services like employee assistance programs, there’s no doubt employers are looking to offer more than ever.”

A captive can also help companies control their costs, and then use the savings to offer more.

There are, of course, some challenges to adding EB to a captive program. Multinationals looking to go down the captive route often have another global benefits program in place, such as pool or global underwriting programs, because there needs to be centralization and understanding of the risks in place to price it effectively.

Ultimately, EB should be viewed as a collaboration between HR/compensation and benefits, and finance/risk management. In companies where these groups operate in silos, it can be hard to build an effective global program.

This article is excerpted from on that appeared in the August-September issue of Canadian Underwriter. Mauricio Suarez is Business Development Manager – LATAM for MAXIS Global Benefits Network. Feature image by iStock.com/AndreyPopov