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Aug. 10 — The number of employers using captive insurance to fund employee benefits is increasing outside the U.S., but regulatory hurdles may be slowing growth inside the nation.
“Everywhere in the world, except in the U.S., is where we're seeing growth” in the reinsurance of employee benefits, including life, death, disability, accident and medical benefits, Kathleen Waslov, a senior vice president in Willis Towers Watson's global captive practice in Boston, told Bloomberg BNA Aug. 8.
The Coca-Cola Co. is one U.S. company that uses captive insurance to fund employee benefits.
In general, captive insurance companies are established with the specific objective of financing risks emanating from their parent group or groups. Using a captive insurer is a risk management technique in which a business forms its own insurance company subsidiary to finance its retained losses in a formal structure.
Forty-four percent of companies that include employee benefits in their captive insurance do so to “control and improve their claims data to help with ongoing cost management,” Willis Towers Watson said Aug. 3 of results of a study it conducted.
“More companies are using their captive as a strategic tool to manage risk and benefit costs proactively and to analyze claim data to identify and address key cost drivers. Many also look to employee benefits as a source of diversification to more traditional lines of risk typically included, such as property, casualty or business-related risks,” Willis Towers Watson, said in the release about the findings.
The lack of the growth in this area in the U.S. is due at least in part to the fact that companies that want to reinsure benefits with a captive need to obtain approval from the Department of Labor in the form of a prohibited transaction exemption, Waslov said.
“It’s stringent and it takes time and expense and it requires disclosure to employees. Those are the kinds of things that inhibit employers from going forward,” Waslov said.
The DOL has an expedited process for employers to receive an exemption if the application is “substantially similar to exemptions granted” in the recent past, Katy S. Kamen, of counsel with Groom Law Group Chartered in Washington, told Bloomberg BNA Aug. 8.
These exemptions, called “EXPRO” exemptions, can be approved in as little as 75 days, while regular prohibited transaction exemptions could take six months or a few years, Kamen said.
Since 2013, the DOL has granted five EXPRO exemptions for captive reinsurance for Laclede Gas Co., Hormel Foods Corp., Sealed Air Corp., Healthcare Services Group Inc., Archer Daniels Midland Co. and Agrinational Insurance Co.
Granting EXPRO exemptions for captive insurance was on hold for a while, but now that the DOL has started the process again, the agency seems to be keeping a close eye on these transactions, Kamen said.
“My sense is the DOL is really scrutinizing the captive exemptions more carefully than they were in the past,” she said.
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