Deck Flashcards
Intro
[Intro self, welcome comments, intro of participants in the room]. Excited to talk with you all today – Learn more about your organization, educate you on the Partner Health captive and discuss if it might be a good fit for your healthcare strategy
Please feel free to ask questions throughout the presentation as I would like this to be as interactive as possible.
Intros-Agenda
CE here at captive resources very excited to learn more about your organization, talk through captive model, and see if it’s a good solution for your total healthcare strategy.
- We will start off by introducing Captive Resources and answering the question “What is a Captive?”
- I’ll explain the structure of a Captive, how reinsurance works, and who does what.
- Next, I’ll show how premiums are set, and how losses flow through the Captive.
- I will discuss what it takes from a financial standpoint to join a Captive.
- And finally, I’ll clarify what the members responsibilities would be when they join a Captive.
About US
First a quick story about our two co-founders - original Chairman Karl von Heimburg and our current Chairman George Rusu. Karl owned a midsize auto manufacturing company. He was frustrated that his cost of insurance was so high even though he had few claims. George Rusu, who was working as a broker and was frustrated that insurnance companies were not rewarding organizations with lower premiums despite them having the right practices and protocols in place.
Over their frustrations they started looking into insurance captives as a solution. but, at the time, they were mostly geared toward those large fortune 500 size companies that were able to absorb cost of all their claims. So Karl reached out to some of his YPO members that also owned financially strong, midsize companies, and together, they could leverage their volume to obtain the benefits and the competitive advantages that those large companies had. Thus - The first true member owned group captive was formed. Raffles still around today and thriving with over 250 members.
I tell this story not only to give context around how CRI came to be, but to highlight that Karl was simply a business owner with a problem. And the Solution that he and George came up with in the formation of this organization has gone on to help many other business owners dealing with the same frustrations today.
Here At Captive Resources we are an independent consultant. As an independent consultant, we do not have ownership or voting rights within the Captive. We are responsible for the creation and oversight of each member-owned group Captive in an advisory capacity. In addition, we work with all of the other service providers to ensure the program is performing effectively and efficiently, but we are not the service providers themselves. We are 100% independent and receive a fee for the administration and quality control of the Captive. We work for members – extremely transparent with our approach which is different than other captives in the market. 1 member = 1 vote
CRI currently handles 45 captives with over 6000 shareholders and exceeding $4B in premium – a lot of growth since out humble beginnings with just Raffles in 1985
Really cut our teeth on the Casualty side and grew to 41 captives there. About 13 years ago, those members starting coming to us after seeing so much success hoping we can help them with a similar solution for their medical strategy so we entered the Medical Stop Loss market. Now have 4 stop loss captives and growing – Internally lot of recourses are being dedicated to our team as leadership sees it as a high growth area - Added an additional 35 team members here in the last 2 years and excited to see what it becomes
One of CRI’s very key differentiators is our Captive Investors Fund. The CIF was started in 1994 and this fund is exclusive to only Captive Resources group captives and is the vehicle used to invest the capitalization, loss funds, and collateral. More on the CIF later.
References
Starting from our humble beginning in 1985 with only 9 members and $1.5M of annual premium,
now with total members exceeding 6,000 and combined premiums greater than $3.5B. The one consistent thing you will see with any member is that they are all BEST IN CLASS in their industries…in fact, we say no to prospective members more than we say yes. CRI is also the market leader in this space with a market share of over 80%!
Being FI Today - Increased costs, lack of transparency, on an island, who profits
Being FI today – prob familiar with many of these challenges hence why we are chatting today – When FI, The risk is on the insurance company, but they also are reaping all of the reward.
Already discussed the rising healthcare costs and the challenge it brings employers
Big challenge in FI market today is the lack of data transparency. Since the data belongs to the insurance company, it’s often very hard to get your hands on to help understand what’s going on with your population and what cost containment strategies can be implemented to help.
Even if you are able to get your hands on that data and have a great broker by your side, the move to self funding can be a daunting task – Employers often feel like they are on an island and that staying status quo is the easiest solution
At the end of the year, if you are doing everything you can to control costs and perform well, it’s the insurance company that retains those profits. In fact, even in those good years, they are often spreading out the costs of the groups in their block who didn’t perform well to make up for those losses at renewal.
BECAUSE of all of these challenges…
Definitions: Specific stop loss, aggregate stop loss, aggregate attachment, PBM, Plan Document, Laser, Carveout
Coming from FI – I want to make sure we spend some time talking through some stop loss lingo for those who are unfamiliar… A lot of times when I talk to potential members, they can be a little nervous about controlling this risk when self funding. They often ask What protections are in place if I have a really bad year? The fact is - Stop loss insurance is in place to protect your cash flow year over year
Specific protects from catastrophic high dollar claims – you’ll have a specific deductible that every company or member picks that they self funded the first dollar amount per person per year – anything above that specific stop loss kicks in to cover those claims
Aggregate stop loss is there to protect from more frequencny, lower dollar costs (we say the claims BELOW spec because those dollars are smaller but can really start to add up if not taken care of)
Aggreate comes into place AND STARTs protecting once you hit your aggregate attachment. To get this amount, UW will look at a census, maybe last 3 renewals, and they’ll say hey we expect you to have THIS MANY claims this year. From there – they’ll add a 20% corridor getting you to your agg attachment point. IF you hit that, that’s when aggregate stop loss kicks in and starts paying for anything above that. let’s say Berkley thought you were going to accumulate $500k worth of claims below your chosen $40k spec level. If we multiply $500k by 120%, we get $600k, which is the maximum amount you will be paying in claims below $40k until Berkley will step in.
Pharmacy Benefits Manager (PBM): This is a third party that is chosen by you, your broker, and your TPA and they are responsible for handling all of your employee’s prescription drug benefits.
Coming from FI world – didn’t really ned to worry about the plan document bc your insurance carrier handled of the agreements and how the plan is managed
When you move to SF, this document governs how your plan is administered and what benefits you offer
The mega companies (4-5k ees) end up hiring ERISA attoryneys to make sure they write this document correctly, fact is that you can keep your current document or make small tweaks through your TPA or PBM - untimely there to outline the plan details
Laser – Tool UW uses to help you manage risk. Talked about the specific deductible what you fund for each individual each year - BUT When looking at your claims information, UW might find that an individual has a known risk this year, Certain condition or drug that they estimate will be 120k at the end of the day. They can set a laser on this indiv for 120k to make sure this risk is covered.
Might sound scary but really it’s just asking the employers to take on a risk that MIGHT NOT even happen instead of them charging you for instead of reflecting it in a higher renewal increase
Carve out - covers a specific risk away from policy – (Most common -cancer/transplant coverages) – if you chose to have a carve out for a particular peril and anything happens in that categoey, it wont affect your overall policy but will be covered 100% on a separate policy
Great option ou have moving in the sf space to control known risk
When you go self funded, There are two types of coverages you purchase for your protection against high cost and frequent claims: specific stop loss and aggregate stop-loss.
Starting off with specific stop loss, this is the coverage you purchase to pay for those large, catastrophic claims. The way this works, is you choose what is called a specific deductible that you self-fund up to on a per person, per year basis before the carrier will cover any risk. For example, if you chose a $40k specific deductible, you would be responsible for paying the first $40k in claims for any one person, and once that $40k threshold has been met, the stop loss carrier, in this instance Berkley, will pay the remaining claims.
Aggregate stop-loss, however, is protection against the “many” claims, or the accumulation of everyday claims below your specific deductible. The way this coverage works is your underwriter will calculate what they think your total expected claims below your specific deductible are going to be for that year. Then they are going to multiply those expected claims by 120% to get your aggregate attachment point. Once you hit that aggregate attachment point, once again your stop loss carrier drops down and pays anything over and above that pre-specified maximum. Going back to our example from before, let’s say Berkley thought you were going to accumulate $500k worth of claims below your chosen $40k spec level. If we multiply $500k by 120%, we get $600k, which is the maximum amount you will be paying in claims below $40k until Berkley will step in.
Plan Document: This is an off the shelf legal document put together by your TPA that governs all of your employee’s benefits. Something that different here than when you’re fully-insured is that you have the opportunity to work with your broker and your TPA to customize this plan document to your employee population and their specific needs. This means there’s a lot more autonomy here than there is the fully-insured world whereby there’s not a lot of flexibility in choosing your plan’s benefits.
Laser – Tool UW uses to help you manage risk. Talked about the specific deductible what you fund up to a specific amount for your employees, BUT When looking at your claims information, UW might find that an EE has a known risk this year, Certain condition or drug that they estimate will be 120k at the end of the day. They can set a laser on this indiv for 120k to make sure this risk is covered.
Might sound scary but really it’s just asking the employers to take on a risk that MIGHT NOT even happen instead of them charging you for instead of reflecting it in a higher renewal increase
Carve out – takes a specific risk away from policy – essentially offers a separate FI plan for a specific peril (Most common -cancer/transplant) – if you chose to have a carve out, you’re taking the risk off the plan and if anything happens in that categoey, it wont affect your overall policy but will be covered 100% on a separate policy
Great option ou have moving in the sf space to control risk
(12/12) Intro
Incurred
Moving from FI – never really had to worry about contracts - You just have an agreement with the BUCAs or whoever your carrier is and you know they will cover any amount of claims above employee portion. As long as you’re paying premiums, they’re paying your claims
When SF, you need to be strategic around how you’re protecting yourself from claims and we do that through contracts.
We typically show new members 1 of 2 contracts
First is a 12/12 contract – Or and Incurred Contract - this covers any claims that were both incurred and paid within the 12-month policy year.
Renewal date in PH is a 2/1. Since it’s a 12/12 contract – Any claim that is incurred and paid until the following February 1st will be covered
Where this gets tricky is when claims are incurred towards the very end of the policy year let’s say January 29th …Depending on the nature of the claim and how long your TPA takes to process all of the information, it might not get paid before that February 1st date, so it is a bit of an aggressive approach as far as contact bases go.
12/15
The other option for that is a 12/15 contract (or a run-out contract). This says that any claims incurred within the first 12 months, has an additional 3 months for those claims to be paid (getting us to that 15 number so 12/15 instead of 12/12).
Back to our partner health example, If a claim occurs between February 1 and Feb first of the following year - it has until May 1st to get paid
Both contracts are fine – this is up to you and your broker to discuss.
*Know your broker has a lot of experience with this – another example of the flexibility you have when entering the captive
References
However, that is why we also talk to our members about 12/15 contracts, which you will hear commonly referred to as “run-out” contracts. This is because this contract provides an additional three months of “run-out” or lag-time for those claims that are incurred at the end of the year to be processed and paid.
24/12
Regardless of what you go with that first year, important to know that we’ll get everyone to a 24/12 contract at renewal time
This contract covers claims that happened in the current 12 months AS WELL AS the 12 months prior and are paid within the policy year. Every year at renewal we simply tack on another 12 months on the contract (SO YEAR 3 WOULD BE 36/12) AND SO ON – this way, claims are always covered regardless of when they occur
Reason we do this is we want to make sure no claims pop up from the previous 12 months that go unpaid
24/12 ensures that any of those from the previous year are paid
Every year at renewal we simply tack on another 12 months on the contract
Year 3 (36/12),
And on and on
Any questions on those contracts?
The last contract we are going to discuss is a 24/12 contract. You will often hear this referred to as a “run-in” or a “paid” contract. This contract stipulates that any claims incurred within the previous policy year or this policy year, and paid within the current policy year are going to be covered. We typically see Partner Health members come into the captive on either a 12/12 or a 12/15 contract and at their first renewal on February 1st, switch over to a 24/12 contract to cover any claims that may have slipped through the cracks. As previously mentioned, a key benefit of the captive is flexibility, so ultimately you are going to work with your broker to decide which of these is best for you and your company.
What is a captive
What is a Captive…very simply, a Captive is an insurance company that provides insurance to, and is controlled by its owners. They key word here—one that you’re going to hear more than once in this presentation—is control.
In the traditional insurance model, business owners are buyers of an insurance policy, but in the group Captive, they become an owner of an insurance company. Similar to any other company the captive has a president, vp, board of directors, but in a captive, those officers and decision makers all made up by the purchasing companies (which we refer to as members).
SO 1 MEMBER = 1 VOTE, and
That ownership is the key to the control, - allowing members to make key decisions and based of the known performance and financials of the captive throughout the year.
Great way to think about it is stop loss with an upside. employers are taking a pre-defined layer of risk from the fronting carrier, which is Berkley, and if they perform well – they have the opportunity to receive funds back through dividends.
We’ll get into the flow of that a little later but want you to remember that you are essentially betting on yourself to perform well. Taking on more risk, but reaping all the reward of health care cost control.
PH Overview
Before we talk more specifically about the offerings within PH, I want to spend some time giving you a high-level overview of the program.
Founded in 2019 largely for FI groups looking to become SF through the captive model. Members have since voted to allow groups that are already SF to join as well, allowing for more visibility of risk for new groups entering the captive.
Currently work with 67 Members
Heterogeneous captive – meaning that those companies are from a variety of industries, geographies, and sizes. Here at CRI, all of our captives are heterogeneous because we feel for health risk, cancer doesn’t discriminate based on SIC code. And that there’s no reason to segment off by organization type for the best risk control
In terms of volume, Partner Health currently holds over $25M in member premium sprread over 12k lives, with over $250M worth of claims within the specific deductible.
A lot of $ flowing through the captive annually
Dividends have been declared annually since inception and we’ve maintained a 99% retention rate. The 1% really is just companies that were bought and left the captive but really just speaks to the tremendous success over the last 4 years and that it really is a great solution for organizations
Last thing I’ll touch on is that the anniversary date is 2/1. This is the date you will get your stop loss renewal each year, not the date your plan year/Open Enrollment is on. Can join at any time and we will pro rate the initial proposal but renewal will align with the other members on February 1st.
Something your broker will help with to make sure you are all set for your OE each year
Rainbow Slide: Stablilize costs and reduce volatitlity, access to data analytics, leverage cost containment solutions, controlling total health spend, transparency, share like minded ideas, return of UW profit
Many reasons why a group captive is a great option for employers but overarching theme is control and this slide really outlines how that captive provides control over your total healthcare costs when all of these factors are working together in your favor.
Imagine you join partner health and start notiving renewals are more predictable and stable - putting money back in your pockets instead of insurance companies
You are gaining access to your own data and utilizing analytics to better understand what’s going on under the hood of your population
PH offers access to SprinBuk at no added cost to help you easily digest and understand that data
So now you know what’s happening with your population, You can integrate the right cost cotnatinment solutions that might be a fit
We have a dedicated HRM team that can help pull together some of those optoins but you working with a broker that has some sf experience and educated on solutiosn out there….
A LOT of control back in your hands with just that but then if you continue to leverage how transparent the captive is by diving into the costs or financials for the year to understand how your money is flowing. We provide reporting not only for yourself, but also for all of the other members to understand the captive performance as a whole
Share Ideas with Like minded Business partners
Might not know who’s numbers align with who on those financials because we ananoymize those reprots but you will have the opportunity to meet and network with business partners that share the same goal of keeping costs down YOY. Members love hearing how certain solutions have impacted an organizations bottom line – directly from another CFO. Really the heart of why we do what we do and how captive resources came to be with the first member owned group captives in the market.
All of these components are in play and if there’s becomes an opportunity for return each year, It is essential to know that all of the profits a Captive earns will go back to its members. This is a major benefit of joining a Captive insurance arrangement and something that all of our members are working toward in their common goal
Investment income is very important. On average, our Captives have historically earned approximately 6% annual returns of their investable funds with the earnings going to the Captive members, not to an insurance company.
For instance, if a Captive has a $100 Million Dollars of investable assets, they can earn around $6 MM per year in profit from their investments.
Flexibility: Keep plan design, keep tpa or unbundle, choose PBM, Choose specific, dividend potential
Another advantage of a group captive model I want to touch on is the flexibility – You’ll work with your broker on the strategy that works best for you but it’s important to note that you can keep your plan designs and TPA if it’s working with you or we are happy to help and give suggestions wherever needed.
Once you chose your TPA, they’ll work with you on selecting a PBM. Given that Rx is on average 1/3 of total spend, this is a key area of focus and one that we’ve seen provide a lot of savings back to members (get into in a few slides)
Can also decide on your own spec deductible, or the amount of claim dollars you are willing to take on for each individual per year. The more risk you take on (or the high the deductible), the lower those premiums are going to be
Flexibility allows you to really mix and match components that make the most sense and set you up for the most success – ultimately leading to potential dividend distribution based on your performance.
Bubble Slide
When you think of your total health care spend – want you to imagine everything inside this grey area – At CRI we believe that when you focus on the strategies within the colorful circles, like networking with like minded individuals and good cost containment strategies, you are able to drive down the most predictable and preventable costs – something we call the “other 85%” of spend outside of premium
In the traditional market - stop loss has always been viewed as a commodity – it gets shopped around every few years to find the cheapest premium. However our perspective is that the premium is only a portion of the total health spend…
By addressing those 1st dollar, preventable claims, or the other 85%, the impact to your total health care costs should be immense – which we’ll see in some examples later on.
Berkley Study
Really put into perspective all the benefits of the captive model we’ve discussed – want to share this study that Berkley completed in 2022, comparing group captive members to traditional self-funded accounts.
Found that captive groups outperformed traditional self funded model by having fewer high dollar claims, smaller stop loss renewals increases and way more profit potential overall. This isn’t just free money and lower renewals getting handed out when you join a captive but is an result of all the strategy and collaboration within the risk/reward model that really makes the Impact.
