The Medical Stop Loss Group Captive is owned and/or beneficially controlled by the group member insureds. Similar to other group members or participants, Medical Stop Loss Group Captive participants are commonly homogenous in their business pursuits. In all cases, the homogenous group agrees to band together and share a certain portion of the risk that is common in all of their businesses. The objective of moderating and reducing the cost of insuring their risk is realized when the group’s risk management strategies reduce losses both before and after they happen.
Like standard insurance for medical expenses, a Group Captive program requires infrastructure for the effective delivery of claim payments, including a claims administration or TPA company, an insurer to issue the policies and a reinsurer to cover the large or unforeseen loss events. The Group Captive Program then adds a Captive facility that is controlled by the group to assume a portion of the risk that typically retained by the insurer. See below the organizational diagram of a Group Captive.
The Group Captive then functions like any other insurance company and reports to its owners its financial performance with premium earnings, loss payments, expenses and investment performance activity. Through retaining risk in the Captive and the application of innovative program services designed to prevent and reduce medical expenses, the Group captive members may experience underwriting outcomes for their Captive reinsurer that enable a return of underwriting and investment income. Without the Captive participant by the insured members, these positive underwriting outcomes would have inured to the benefit of the insurance company alone. The return of underwriting and investment income obviously reduces the insured members cost of insuring their medical expense insurance coverage.
A Group Captive delivers better results to participating members for several reasons. First, by retaining risk in the captive facility, the insured members are able to capture a portion of the underwriting and investment income a traditional insurance company typically retains. The profit and overhead component of the standard insurance transaction can be anywhere from ten to thirty percent of the premium dollar paid by an insured. When these profit and overhead dollars are captured by the insured members, their overall cost of medical expense insurance is reduced.