Captive Interest Surges Among Senior Care Providers

An increasingly challenging insurance marketplace is putting pressure on organizations across all industries. Long-term care and senior living entities have been hit hard as skyrocketing general and professional liability losses led not only to significant rate and premium increases, but also reduced limits and capacity, increased retentions and deductibles, and heightened coverage restrictions.

The ongoing COVID-19 pandemic has complicated an already difficult situation as senior care entities face augmented risks with limited, if any, immunity protection.

Companies struggling to secure needed coverage through the traditional insurance market may achieve financial flexibility by setting up an insurance captive.

Is a Captive Right for Your Company?

Aside from leaving companies open to potential liability claims, insufficient coverage could lead to loss of experienced processionals or a failure to meet lender or contractual requirements. As they navigate a complex environment, interest in creating a captive insurer is gaining steam among senior care providers. Benefits can be multifold, including allowing senior care providers to control their coverage costs. In addition, a captive allows a parent company to create tailored solutions, including coverage for certain perils — like sexual molestation and abuse — that are currently excluded or limited by traditional insurers, thus helping to avoid gaps in coverage.

While a captive can help organizations regain control of their coverage needs, there are some issues they should consider:

• Cost and commitment: A captive is a real insurance company that requires substantial investment both to set up and to operate. The effort and cost involved in setting a captive make it more attractive as a long-term solution rather than a short-term initiative that is utilized while waiting for the insurance market to become more advantageous. Aside from the capital contributions required by the parent company to set up the captive, there will be ongoing costs to support the captive’s business plan and continuous operations. Forming and operating a captive will likely require the assistance of various specialists, including attorneys, auditors, investment managers, and reinsurance professionals.
• Location: Consideration will need to be given to the captive’s domicile, and whether this will be domestic or offshore. The chosen location will determine capitalization costs, tax implications, regulatory requirements, and convenience, among others, and will need to be assessed as part of the planning evaluation.
• Coverages: Senior care entities will be able to determine what coverage will be written by the captive, including general and professional liability, sexual abuse and molestation, deductible buybacks for general and professional liability, and workers’ compensation. This flexibility allows them to create a customized program that insures difficult-to-cover perils.

Senior care providers interested in forming a captive should, as a first step, determine the viability of their plans by working with an advisor to evaluate the strategic aims of the projects and better understand their tolerance to risk. An ensuing feasibility study will establish the captive’s role and its effect on your overall insurance program structure, provide guidance related to the most appropriate domicile, and include a cost/benefit analysis of setting up a captive.

Although setting up a captive requires preparation and commitment, increased challenges to secure the right coverage at the right price make this the right time for senior care providers to understand whether this is the appropriate solution for their circumstances. Consider the benefits of working with an experienced broker that understands the regulatory landscape, nuances of different locations, as well as the reinsurance market and can guide you through an at-times complicated process.