Improved Claims Data Drives Use of Employee Benefit Insurance Captives
From: Willis Towers Watson. August 03, 2016
LONDON, 3 August 2016 — The use of captive insurance companies for financing employee benefits continues to evolve as companies increasingly go beyond using their captive vehicle purely to save money on their annual employee benefits bill. According to a study by Willis Towers Watson, the primary driver for nearly half (44%) of companies with employee benefits in their captive is to control and improve their claims data to help with ongoing cost management. This is up from a quarter (24%) in last year’s study. Conversely, the study finds that the proportion of companies for whom the main driver is cost savings dropped from two-thirds (67%) in 2015 to 44% in 2016.
Mark Cook, Director at Willis Towers Watson said, “There has been a clear evolution in the rationale for companies to include employee benefits in their captives. The initial motivation for using a captive is often the simple desire to save money on the ever increasing cost of providing employee benefits. For some companies these ongoing cost savings are all they require from their captive, but many are developing their use and finding additional benefits.
“We see more and more companies using their captive as a strategic tool to manage risk and benefit costs proactively and to analyse claims data to identify and address key cost drivers. Many also look to employee benefits as a source of diversification to more traditional lines of risk typically included such as property, casualty or business related risks.”
Willis Towers Watson polled over half* of the employee benefit captives operating globally as part of its specialist Captive User Group** forum, held in London and New York in May and June. The study found that half (50%) of those questioned use their captive vehicle to provide death and disability benefits as well as healthcare or medical benefits.
Proactive risk management was also reflected in the influence which employee benefit captives have over pricing, with half (50%) indicating that their captive has full determination or significant influence over pricing rather than relying purely on local insurers’ underwriting. Looking ahead, nearly half of the employee benefit captive users (47%) indicated that they are also considering a captive pension transaction, either in the next 3-5 years (41%) or within the next 12 months (6%).
Cook continued, “We continue to see a broadening use of employee benefit captives. Companies continue to explore further areas in which they can take on more of the risk and manage it internally, in order to save money and mitigate risk. Also many companies now recognise captives’ importance as a tool in benefit cost management, by identifying and addressing the key cost drivers. Successful employee benefit captives are able to stabilise and slow down the increase in benefits costs, in an environment where medical costs continue to increase.
“Our own Global Medical Trends report from earlier in the year shows that the average global health insurance premium increased 7.5% in 2014, 8% in 2015 and is estimated to grow by over 9% this year. Captive users recognise this trend: over three-quarters of those we questioned had noticed a trend towards increasing medical insurance claims among their employees. So the savings available to companies who run a successful benefits captive can be significant.”
Original article posted here.