MARSH
“The US reform of healthcare will encourage larger physician groups to look closely at medical malpractice costs and give thought to how they can retain risk and spend less on insurance costs.”
taking that risk. They need to have actuarial studies and audits done, and ensure there’s a regulator and a manager involved, so that those who are responsible for risk in that organisation can take a little higher level of comfort. The rigour of risk discipline comes about when companies take on more risk, rather than simply saying “we will pay for the loss when it occurs”.
Where do you see the greatest potential for captives going forward? If we go back to the clarity from the Internal Revenue Service in terms of what constitutes insurance from a tax perspective, it is probably going to prompt larger organisations, who may have millions of dollars worth of workers’ compensation losses, to consider whether a captive will work for them. There will be fewer grey areas—there will be less need for tax opinions and less uncertainty. Companies will feel more comfortable proceeding if they understand the economics that result from the tax side of employing captives.
I still see great potential from the ability to access the Terrorism Risk Insurance Programme. As organisations continue to buy less insurance and take on more risk—even if there is not a lot of significant economic benefit coming from a captive—it encourages organisations to take a much more disciplined approach towards
48 CICA | Forty years of captive leadership
For those parents considering a captive entity, what are the key considerations that they need to bear in mind when forming the captive? Develop the business plan in two stages. The first stage is, what you are going to do immediately. The second is, what’s the long-term perspective? You want to build a captive for the long term. Frequently it’s a reaction to something when a captive is created, but you want to build a business plan that is solid enough so that when a new risk manager comes into play, or there’s a new treasurer, all of the business reasons behind the captive are clearly laid out and articulated, so there is no question as to why the captive was formed. And that, frankly, leads to my role, which is to help companies carry out feasibility studies and approach the process in a formal way, as opposed to reacting to pricing increases or significant claims activity. l
Arthur Koritzinsky is a managing director in the Captive Solutions Group at Marsh. He can be contacted at:
arthur.g.koritzinsky@marsh.com
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