By Chris Kramer
The proliferation of small to middle-market firms with better-than-average loss ratios and the desire to manage their own risks and have control over insurance costs has changed the landscape of the captive insurance market which was once the sole territory of larger firms. Once a firm’s profile (strong balance sheet, long-term commitment to risk financing, capital if needed, proactive risk management approach, etc.) and a feasibility study supports it’s a good candidate to consider a captive, there are several factors in successfully implementing a captive, including choosing the right type of structure, the captive’s domicile, and captive management firm to oversee licensing and regulatory compliance, accounting and financial reporting, and coordinate with third-party service providers. Having the right outsourced, specialized service providers to implement the captive’s day-to-day operations is critical, including choosing the Third-Party Administrator (TPA) charged with handling claims.
What makes a good TPA? In addition to gaining a clear picture of the TPA’s financial strength and capabilities, it is also important to know that the type of services provided are aligned with the risks covered by the captive. For example, a captive for Workers’ Compensation requires a TPA to provide Medical Bill/Utilization Review, Medical Case Management and Pharmacy Benefits Management. Moreover, the TPA must be able to meet the client’s data needs, provide consistent claims handling, and work to lower costs where it can. Other considerations that should be looked at when evaluating a TPA include the following:
A TPA’s management structure, reserve philosophy, file loads per adjuster, employee turnover rate, and banking arrangements should also be reviewed.
At Caitlin Morgan, we specialize in providing captive insurance solutions and work with best-in-class TPAs and other third-party service providers to facilitate ongoing success for our captive clients. For more information about our captive insurance services, please give us a call at (855) 975-4949.