Alternative Risk Financing Studies
Most organizations have choices for the financial management of their risks to loss, but are not presented with these alternatives at the time when insurance purchases are made. Alternatives range from simple deductibles, self-insured retentions, loss sensitive premium development plans, trust funds and captive insurance companies.
A comprehensive Alternative Risk Financing Study would review these alternatives for each type of risk in your organization and offer recommendations for the most cost effective method of financing each type of risk. A more focused study may consider only one or two types of risk with the same goal of arriving at the most cost effective program.
In some cases, formal actuarial studies may be necessary as part of the project and we can arrange for and manage such a study in order to incorporate the results of the study in our overall project.
Captive Feasibility Study
By the end of 2018, there were more than 6000 captive insurance companies providing insurance protection to their parent organizations, association members with similar risks, or that have been arranged by agents/brokers/insurers as specialty insurance vehicles for participants. The following is the 2018 count of captives in the two most popular international domiciles and the six most popular domiciles in the United States:
- Bermuda: 711
- Cayman: 674
- Vermont: 580
- Utah: 445
- Delaware 421
- North Carolina 250
- Tennessee 169
- Hawaii 160
Will a captive insurance company work for your organization? What are the benefits for creating a captive? Are there tax advantages related to a captive as compared to other financing techniques? If a captive is right for you, where should you domicile it?
A captive feasibility study will address all of these questions and more. Our study would begin with a thorough discussion with executives of your organization, a review of the current insurance and financing arrangements for the risks that would be considered for a captive, the arrangement for and management of an actuarial report, development of proforma financial statements, analysis of possible domiciles, evaluation of alternative structures, and arrangement for tax counsel. The results will be published in a comprehensive report which can be used for Board presentations to gain concurrence with the recommendation and in the application process for the selected domicile.
If a captive is considered feasible and if management accepts our recommendation, we are available to continue the project by assisting in the selection of service providers that will assist in the registration and approval process, manage the captive and provide necessary services to the captive. Our firm will not manage a captive for whom we have conducted a feasibility study. We will assist in the formation and registration process if requested to do so by our client.
In most states, governmental agencies have the opportunity to pool their exposures to risk and subsequent losses. These pooling arrangements are very similar to a captive insurance company in terms of operational and financial requirements.
To determine the feasibility and viability of such an arrangement, it is important that a comprehensive feasibility study be conducted by a qualified and independent consulting firm. The Huntington Group can conduct such a study without the conflict of interest resulting from an ulterior goal of managing the resulting organization or being involved in the excess insurance usually related to such an undertaking.
Assessments of Existing Captives or Pooling Arrangements.
Financial audits are regularly conducted of captive insurance companies and public agency pooling arrangements, but occasionally there is a need to audit or assess all of the operations of a captive. This evaluation would begin with addressing the question of why was the captive created and are those same internal and external factors present such that the captive would be formed today if a new feasibility study were to be conducted.
Beyond this question, the assessment would review the services provided by all service providers and the fees charged for such services, the breadth of risks retained by the captive, the allocation of premiums, and limits of coverage provided. If requested, this assessment would also consider various avenues of expansion for the captive operations.
Risk Management Organization Studies
In many organizations, the position of Risk Manager has been created and the job responsibilities evolve over time depending on the initiative and personality of the person in the job coupled with the culture of the organization. The responsibilities of the risk management position in some organizations are extremely broad and are sufficient to support the title of Chief Risk Officer (CRO). The CRO may have responsibility for not only the management of accidental risks, but also the business risks which confront the organization on a daily basis, such as the investment portfolio, seasonal income gains or losses, employee turnover, etc.
In other organizations, the risk manager is responsible for only a small portion of the total risk management functions that are considered necessary to develop, implement and maintain a comprehensive risk management program.
Our project begins with a series of interviews with executives and managers throughout the organization in order that we can identify not only the risks to loss faced by the organization, but identify the person and department responsible for controlling the risk. We will evaluate alternative organizational structures the may be more effective in managing the risks, develop the advantages and disadvantages of each alternative and then we will present these alternatives to your management for consideration toward improving risk management and reducing the overall Total Cost of Risk.
Risk Management Audits
Reducing the Total Cost of Risk should be the number one priority of most organizations. The Total Cost of Risk is commonly made up of:
- Self-insured and uninsured losses
- Insurance premiums
- The administrative cost to manage risks
- Loss control expenses
- Claim management expenses
The proper balancing of these expense categories is the goal of an efficient and effective risk management program. Our audit is initiated by a process that leads to the tabulation of the above expenses for your organization. During the course of the project, we will visit and survey various locations of your organization, interview executives and managers throughout the organization, and thoroughly review all documents related to the risk management and insurance program. This review will include all insurance policies