What are Captive Arrangements?

Captive arrangements, in the realm of employee benefits, are a strategic approach to self-insurance. They involve a consortium of related employers who collaborate to establish a distinct entity, often referred to as a "captive," dedicated to providing insurance coverage for their employees. This captive entity functions essentially as an in-house insurer, assuming some or all of the financial risk associated with the benefits offered to their employees. These benefits might include health insurance, workers' compensation, disability coverage, or other types of insurance.

The primary goal of forming captive arrangements is to enable employers to effectively pool their resources and collectively manage the financial risks associated with employee benefits. By doing so, they gain more control over their benefit plans, allowing them to customize insurance offerings to better align with the unique needs and preferences of their respective employee populations. Additionally, captives can potentially lead to cost savings, as they provide employers with a degree of predictability over their benefit expenditures, particularly in contrast to traditional fully insured plans where premiums are paid to external insurance carriers.

Captive arrangements typically appeal to larger organizations or groups of employers who share common interests or affiliations, such as members of a trade association or companies within a corporate group. However, they are not without complexities and regulatory requirements. Employers considering captive arrangements must engage in thorough risk assessments, establish effective governance structures, and ensure compliance with all applicable laws and regulations, as captives operate within a tightly regulated environment. When managed effectively, these arrangements offer a way for employers to enhance their control over benefit plans, potentially reduce costs, and provide more tailored insurance solutions for their employees.

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