Businesses Turning to Member-Owned Insurance Companies To Gain Control Over Risk Management Costs
Business owners throughout the mid-Atlantic region are fleeing to member-owned insurance companies (known as “captive insurance” companies) to find greater control over risk management and insurance costs and quality, according to a Delaware-based insurance firm.
Lyons Companies, an insurance brokerage, risk management and employee benefits firm based in Wilmington that serves businesses and individuals in the region and nationally, recently placed its 100th client in a group captive insurance company as an alternative risk protection mechanism. A group captive is an insurance company that provides insurance to and is controlled by its owners.
The workers compensation cost spiral in Delaware, Pennsylvania and Maryland is a big problem pushing decision-makers toward the safer harbor of captive insurance, explained David F. Lyons Sr., president and CEO of Lyons Companies.
“Workers compensation price shocks are coming year after year,” Lyons said, “and are just crushing businesses. The companies that are not having significant losses in workers comp are, in effect, subsidizing others with claim problems.” Delaware workers compensation rates increased 14 percent for the standard market and 11.4 percent for assigned risk beginning December 2013, according to the state insurance department.
One firm, Parcels Inc., with 125 employees in Delaware that provides support services to the legal, corporate and graphics community, wanted to be recognized for its safety record and risk management performance and liked the captive concept as an alternative for workers comp costs. “Our big concern was that year after year, prices were going up with no chance of getting any money that we were spending on premiums back — even if we had good years in terms of losses,” said Sean Kennedy, vice president of Parcels Inc.
The firm turned to a captive insurer upon Lyons’s advice for its workers compensation, automobile, and general liability insurance. “Being in a member-owned captive insurance company heightens self accountability. The captive gives us the ability to have our insurance costs based on how we perform in safety and risk management. In the captive, everyone is pushing toward the same thing: a small amount of claims,” Kennedy said.
Captive insurance can give businesses more control over the cost and quality of insurance and risk management, if their safety performance and risk management approach are in synch with a captive’s other members, noted Lyons.
Mid-sized firms in a variety of industries, including family-owned businesses, are tapping captive insurance solutions, according to Lyons, including construction, energy, food, healthcare, transportation, retail and services companies.
Elements of a captive insurance program typically include:
Said Kennedy of Parcels: “We have a pretty clear blueprint as to what needs to be done to improve even further in our safety and risk management. It’s satisfying to know we and other members are in control.”
Lyons Companies as the insurance broker provides a feasibility study to determine if a captive is appropriate, and which captive might be suitable.
About Lyons Companies: Lyons Companies (LyonsInsurance.com) is an insurance brokerage, risk management, and human capital management and employee benefits firm based in Wilmington, Delaware. Founded in 1984, Lyons Companies provides proactive risk management products and strategies; claims management and risk control services; employee benefits programs and human capital management consulting; comprehensive personal lines insurance; and life insurance, estate planning and asset management solutions. The firm is a member of Assurex Global, a partnership of the most prominent independent insurance agents and brokers in the world.
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