From: Captive International
Establishing a captive may seem like a heavy lift for educational establishments with no experience of, or interest in, running an insurance company, but the cost savings can be quite substantial, says Courtney Claflin of the University of California.
The University of California (UC) system consists of 10 universities, five academic medical centres, 280,000 employees and more than $37 billion of annual revenues. Like many large organisations, the university formed a captive programme to finance its risks more efficiently, create direct access to additional reinsurance markets and provide coverages that are either commercially unavailable or too expensive to procure.
Additionally, the captive platform helps provide customised insurance programmes to its faculty, staff, employees and students, delivering long-term value from coverage and financial standpoints.
Captives generally insure traditional hazard exposures. Most educational institutions assume relatively high retentions (deductibles) and then purchase excess insurance or reinsurance for claims exceeding those retentions. Transferring actuarially determined, expected losses to a captive via premiums means the university earns interest income until claims are paid out.