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Whose Captive Is It Anyway?

Whose Captive Is It Anyway?. Surviving and Thriving Captive Ownership. Whose Captive Is It Any way?. Moderator: Neil Horner, Senior Counsel, Head of Corporate, Attride-Stirling & Woloniecki Panelists: Erin Eldridge, RN MBA, Premier Health Partners

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Whose Captive Is It Anyway?

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  1. Whose Captive Is It Anyway? Surviving and Thriving Captive Ownership

  2. Whose Captive Is It Any way? • Moderator: • Neil Horner, Senior Counsel, Head of Corporate, Attride-Stirling & Woloniecki • Panelists: • Erin Eldridge, RN MBA, Premier Health Partners • Scott Gemmell, Senior Vice President, Marsh Management Services • Mary Gutman, RN MS, CPHRM, DFASHRM, Premier Health Partners

  3. Introduction • Understand Premier Health Partners organizational and captive structure • Discuss the advantages and disadvantages to captive ownership • Review the decision to manage claims versus outsourcing • Discuss claims management, underwriting, and loss prevention • Regulatory issues affecting captives/USA • A Captive Manager’s Perspective

  4. About Premier Health Partners • Southwestern Ohio Joint Operating Company • Managing four healthcare systems with 1543 acute care beds, 2 nursing homes, home health care, 5 dialysis centers and over 600 employed physicians/residents • Formed in 1995 with two systems • Between 2005-2008 two more systems added • Over 15,000 employees

  5. Our Captive History • 1988 formed captive for one hospital system in Bermuda • 1998 second system formed Bermuda captive • 2005 third system moved its captive from Cayman Islands to Bermuda • 2006 PHPIIL incorporated and registered as class 3 segregated account company • 2009 fourth system added to the captive

  6. Segregated Account Company • PHPIIL entered into participation agreements with each of the four health systems that comprise PHP • Each system has a cell and is a shareholder of PHPIIL • Cells are not entitled to share in any profits or assets available for distribution in respect of any other segregated account or the general account

  7. Segregated Account Company, continued • Coverage includes professional, general, employment and D&O liability • Excess commercial liability coverage is in effect

  8. Captive Advantages • Allows PHP to control our own destiny • Premium is retained and predictable • Funded amounts reflect the risk • Profit margins are not added to commercial carriers • Interest income • Coverage can be tailored to PHP • Risk pool is controlled • Expenses are reduced

  9. Disadvantages • As the owner, PHP takes significant financial risk • Long term commitment • Needed access to capital to establish the captive • Management of claims requires expertise or the costs associated with a TPA

  10. PHP’s approach to Captive Ownership • Understand how PHPIIL aligns with the mission, vision and values of PHP • Utilization of the captive as a vehicle to protect the assets of PHP • Belief in proactive loss prevention, patient safety and quality outcomes • Flexibility with lines of coverage • Autonomy is valued

  11. As a Captive Owner, what are the next steps… • Educate the Board • Captive is not meant to be a profit center • Determine how captive issues are reported to Board • Understand Board and management’s risk tolerance • Clearly define settlement authority • Share the Risk Management Plan

  12. Next steps, continued • Captive owners need to know their actuary, broker, legal counsel, auditors and have a strong relationship with the captive manager • Assess risk management capabilities • Evaluate ability to manage claims versus utilizing a TPA

  13. Role of the TPA • Provide claim investigation with the assistance of risk manager • Evaluate standard of care, causation and issues related to consent • Analyze damages and apportionment of liability • Claim resolution • Tracking and trending • Reporting to the excess carrier

  14. Evaluation of the TPA • What is the size of the client base and resources available to service those clients? • What is functionality of claims system? • Location of the claims staff to the client • Experience and education of claims staff • Adequacy of professional liability insurance and hold-harmless provisions in the agreement with the client

  15. Captive Claim Management w/o TPA- Key Decisions • How is the organization/ RM department structured? • What is the claim volume and size of the program? • Determine internal expertise • Is the support staff adequate? • What technology is available for claims? • Understand reporting requirements

  16. Claims Management • Establish processes for identification of claims • Definition of a claim per policy • Reserving • File management • Assignment of counsel • Negotiation (with or without counsel) • Resolution (Settlement, ADR, Trial) • Subsequent remedial measures

  17. Establishment of Claim Philosophy • Agreed upon by Captive Board • Addresses reserving methodology • Defines settlement authority • Claim resolution methodology • Defines consent to settle provisions in policy • Addresses disputes

  18. Underwriting • Essential to have a proactive approach • Establish a philosophy and process • Know what your license allows • Determine programs/physicians to be insured • Determine what is outside the captive’s risk tolerance • Formal application and review • Analyze the risk • Authority to decline applicant

  19. Captive Management • Funding studies (actuary) • Captive audits • Excess renewal (broker) • Policy management (aggregate erosion) • Claim management system administration • Interaction with accountants and captive managers (internal and external reporting) • Certificate production

  20. Implementation of RM Plan • Includes risk identification, analysis, loss control, risk financing and monitoring • Comprehensive in a captive environment • Establishes procedures to include file management, reserving, settlement authority • Should include reporting of trends, claims by severity and frequency • Addresses loss control initiatives

  21. Regulatory Issues • State reporting requirements (USA) • National Practioner Data Bank (USA) • Reporting to the Medical Boards, etc. • Medicare, Medicaid, and SCHIP Extension Act (MMSEA) 111 rules

  22. Required Staff Skills and Traits • Educational preparation • Understanding of law, medicine and insurance • Experience • Ability to problem solve • Conflict management • Political savvy and agility • Integrity and Trustworthy

  23. Whose captive is it anyway?A Captive Managers Perspective • PHP have clearly demonstrated continued proactive use of the captive and how it has evolved over time • Such proactive use of captives is not commonplace • Victims of own success • Most successful captives are those whose owners continually look for ways to enhance its use

  24. Whose captive is it anyway?A Captive Managers Perspective • Whose captive is it anyway? • The owners! • Captive Board has absolute control • Representatives from parent company should make up majority of the board • What is the role of the captive manager: • The flawless delivery of the basic services, eg. accounting and insurance policy administration • Implement the strategy - achieve the goals to ensure experience the maximum return • Provide guidance & ideas to the owners about how they can enhance the value of the captive

  25. Whose captive is it anyway?Captive Managers Guidance • Formal and Informal • Underwriting • Investment • Risk Management • Regulatory • Benchmarking

  26. Whose captive is it anyway?Use of Committees • Underwriting Committee • e.g. Risk manager, Non-Exec Director, Captive Manager • Guidelines will be set by the captive board • Terms of Reference • Consider and approve all business to be written • Consider and approve reinsurance arrangements • Negotiate and agree collateral requirements • Review and approve claims • Review and approve IBNR reserves with actuaries

  27. Whose captive is it anyway?Use of Committees • Finance Committee • e.g. CFO, Treasurer, Non-Exec Director, Captive Manager • Guidelines will be set by the captive board • Terms of Reference • Monitor KPI’s as set by the board • Monitor investment performance • Control of credit exposure, premium receipts, reinsurance receivables etc. • Appointment of bankers, investment managers, custody services etc.

  28. What successful captives do differently?A Captive Managers Perspective • Visit the domicile regularly • Diversify captive use • Maximise its flexibility • Respond to market cycles • Changing program design • Consider primary and reinsurance markets • Treat the captive manager as a business partner • Strong relationships with all service providers

  29. Resources • ASHRM Monograph: “The basics of captive insurance programs”, July, 2003 • The Risk Management Handbook for Health Care Organizations (5th Ed. Volume 3) • Bermuda Captive Owners Association http://www.bermuda-insurance.org/x-bcoa.htm

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