As Medical Costs Grow, More Captives Used to Protect Employees

Rising medical costs are a significant expense for organizations. In 2017, medical costs increased nearly 10% globally, according to Mercer Marsh Benefits’ 2018 Medical Trends Around the World survey. That’s almost three times the estimated rate of inflation globally.

As businesses continue to seek ways to control these rising costs, one strategy that many are using is to insure employee benefits programs through their captive insurance companies. According to our 2018 Captive Landscape report, in 2017, increases in Marsh-managed captives writing employee benefits were:

• 35.7% for multinational pooling.

• 21.8% for employee benefits.

• 14.3% for medical stop-loss.

Over the past five years, the number of Marsh-managed captives insuring multinational pools for benefit risks has increased by 550%.

Greater Captive Use Expected

Insuring or reinsuring employee benefits through a captive can take multinational organizations a significant amount of time as they consolidate benefit contracts in different countries for that purpose. Generally, benefit programs are provided to local subsidiaries and groups of employees through multiple insurers or network contracts, some of which may be multiyear.

The cumulative costs to insure employee benefit risks often exceed those of global property and casualty insurance, yet benefit financing and governance is far less sophisticated. We expect continued growth in captives writing multinational employee benefits over the next three to five years as service support eventually follows a similar structure to global property and casualty programs, which are centrally controlled with consistent and transparent governance.

Among Marsh-managed captives, interest remains steady for writing employee benefit coverages such as group life, multinational pooling for health and disability, and voluntary benefits such as homeowners and auto. According to our report, among Marsh-managed captives not already writing employee benefit coverage: 

• 19% are likely to consider writing employee benefits coverage in the near future.

• 16% are currently considering it.

Voluntary benefits, including homeowners, automobile liability, and umbrella liability, also are experiencing steep growth in Marsh-managed captives.

Protecting Human Capital

Companies are generally looking to create efficiencies and gain control as they face the triple threat of medical insurance cost inflation, an aging workforce, and a shift in responsibility for providing benefits from governments to corporations. Human capital is an organization’s most valuable asset, and captives offer creative ways to protect it, including funding employee benefits, enhancing safety programs, and rewarding risk-reducing behaviors.

For more information about trends in captive insurers, read our 2018 Captive Landscape report or reach out to your Marsh representative.