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About Captive Insurance Companies
By William Clay Tucker CAP CMFC CRPS
The Woodville Group, LLC wctucker@thewoodvillegroupllc.com
Most states don’t recognize small captive insurance companies (CIC’s) as beneficial holders for required medical malpractice coverage.
Couple this with the fact that most medical practitioners aren’t insurance experts, and the end result is that doctors have only a few (very similar, quite expensive) malpractice insurance options.
So, when it comes time to purchase or renew your medical malpractice insurance, you have three options:
- Retail Med-Mal: While this may seem like the simplest solution, it is also the most expensive. With zero returns on premiums paid, you are funneling your money into a “black hole”. Regardless of your claims history, you never see a return on reserves. In the event of a claim, you may have little – or no – say in your defense or the claims negotiation and settlement process.
- Normal Risk Retention Groups (RRGs): Although an RRG is a step in the right direction, your medical group will be sharing overall medical malpractice risks with other medical groups insured by the RRG. While you may get back some of what you put in (as a return on equity or a stock repurchase), the amount depends on the claims experience of the RRG’s insureds as a whole and the financial condition of the RRG at the time of your departure from the RRG. Under this approach, the medical group’s financial investment remains 100% in the RRG during the entire insurance coverage period.
- A Single Practice Risk Retention Group: A medical practice can now form its own small Risk retention Group (RRG). The RRG retains a small percentage of overall insurance risk (an average of ten percent) and therefore your group’s participation in shared risk with all of other insured medical groups remains small. The primary reinsurance structure is the reinsuring Captive Insurance Company (CIC) which is owned 100% by your medical group’s owners and only reinsures the physicians in your medical group practice. In the Single Practice RRG model, the majority of your medical group’s financial investment remains in its CIC, which will remain owned and controlled by the owners of your medical group.
Enter the Single Practice Risk Retention Group
Year after year, as rates go up, doctors are funding their med-mal insurance and never seeing a return on the premiums they pay. With this structure you can insure your medical group’s practice and see a significant return on paid premiums by practicing good medicine and good risk management.
Advantages
Here are just a few advantages that a Single Practice Risk Retention Group can offer:
- The insurance company is owned by the same medical groups it insures
- Regulated financial and insurance reporting methodologies, no questionable loopholes or practices
- Return of stock at book value when medical group is no longer an insured or medical practice changes its insured personnel.
- Recapture lost wealth through practicing good medicine and risk management!
- After five years, your medical group could get back more than 50% of what it has paid in total premiums
- After ten years, your medical group could get back more than 100% of what it has paid in total premiums
Assessment
Those with the highest insurance rates, such as surgeons or OB/GYN doctors have the most to gain from self-insurance structures. In order to get started in forming your own Captive Insurance Company (CIC), you must first understand that this is not meant for a short-term solution. Because of the fees due when getting started, a minimum of three years commitment is required. The longer you hold this insurance with fewer claims, the more assets will be available at its completion. Recapture lost wealth—you owe it to yourself to investigate.
Conclusion
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Filed under: Professional Liability, Risk Management | Tagged: Captive Insurance Companies, medical malpractice insurance, risk retention group, Single Practice Risk Retention Group | 7 Comments »
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