Owners leveraging captives to negotiate lower rate hikes

Risk managers can use captives to negotiate down prospective commercial insurance rate hikes, even if they don’t end up using the captives to cover the risks, said several captive owners at the World Captive Forum in Orlando.

Massachusetts Life Insurance faced a tough property renewal two years ago, said John O’Neil, lead insurance counsel at the US-based company’s captive.

“We had not had a lot of claims… but some of the top layer property carriers really wanted a lot of premium,” he said.

The company decided to run the top layers of the property programme through its captive, but two days before the renewal the insurers returned with an offer of a significantly lower premium for the coverage, O’Neil said.

“We had walked away from it already, at least mentally and emotionally. It was almost like walking out of the car dealership thinking ‘I’m never going to own that car’ and then three days later the dealership calls you back saying, ‘Do you still want it because we can come to you a little bit,’” he said.

Jonathan Poling, director of risk management and internal audit at Sun Chemical, recalled a similar experience when his company faced significant increases on its medical stop loss program.

The programmes loss experience was very good but the insurer wanted to increase the premium by 45% at renewal, so Sun Chemical used a reinsurance broker to investigate coverage for the exposure via its captive.

“When the incumbent found out that we were looking to move this into the captive, we ended up with a 7% or 8% increase, and that was a big win,” he said.

Michael Serricchio, managing director at Marsh Captive Solutions, who moderated the session, noted that there has been an 84% increase in medical stop loss business in Marsh’s captives over the past three years.

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