Willis
After the successful launch of WillisCaptus, CIT talks to Les Boughner of the Willis captive and consulting practice to get the low down on the state of RRGs
Willis has been serving the industry for many years. How has your firm’s and your own experience helped to provide for captives/RRGs and innovate new solutions to meet their growing needs?
Fundamentally, there has been little structural innovation for captives/risk retention groups (RRGs). However, innovations with the applications of captives that are frequently driven by captive owners is continuous. The use of captives to access the Terrorism Risk Insurance Act pool, and expansion of the market with medium-sized companies utilising the 831(b) election also expands the market for captives. Innovative applications for captives are typically driven by the client when they understand the value a captive provides to their overall financial management.
We have been very fortunate in that a software program that we modified from another business unit to manage our RRG portfolio more responsively has substantially exceeded our expectations. We branded it WillisCaptus and are marketing it to physician groups as well as captives and RRGs.
Figures suggest that the RRG sector is primed for a period of growth. Do you agree?
I would agree if there was a feeling that there was material market hardening, which does not appear to be happening. In fact, there is a threat due to healthcare consolidations where regional hospitals are being acquired by larger hospital groups, which are more likely to use captive structures for professional liability exposures.
How has the use of RRGs changed? What differences have you seen in regards to what they can now provide?
It really has not changed materially. In fact, existing RRG legislation is very responsive to the need to add capacity during market constrictions. However, there are very positive developments for RRG members that develop and share best practices for loss control and claims practices resulting in lower costs and loss experience. There is also pending legislation for property coverage. While there does not appear to be a need for additional capacity, many RRGs would like to use the RRG framework to experience the same positive benefits when managing property exposures.
State intervention has threatened RRGs in the past—does this problem persist? If so, how is it being tackled?
It is being tackled the American way, through litigation. Insurance is state regulated in the US and there is a threat from RRGs and the Federal Insurance Office, which are federal entities.
How important are associations like the NRRA to championing the RRG model?
They are very important, provided that they receive broad industry financial support. The National Risk Retention Association has been effective in mustering industry support when needed. The Self-Insurance Institute of America has a staffed government affairs office in Washington DC that not only responds to threats to the self-insurance industry, but also proactively lobbies for positive reform.
Captive insurance companies on the whole fared well during the economic crises of the past, and continue to do so in the present—how necessary is further regulation to ensure that they remain solvent in times of crisis?
If the banks had been regulated like the captive industry, there would not have been an economic crisis. Captives, as well as the admitted insurance industry, survived the crisis intact and well regulated.
