60 cayman captive 2018
provides a captive manager’s
perspective on the healthcare
utah778 / iStock Photo
Captives and healthcare have been intricately linked since
the first healthcare captive was created in the Cayman
Islands in 1976. Initially the focus of such captive structures
was the element of control given the associated benefits of
costs savings, enhanced loss control and protection from commercial
market pricing swings.
Most of the early healthcare captives were created to write deductible
reimbursement policies for related workers’ compensation risks and
assume liabilities from the healthcare system’s trust. Over time the coverage
provided by healthcare captives grew to include coverages for a variety
of risks including general liability, property, D&O, E&O, cyber, equipment
maintenance, employment practices liability and excess coverage.
Given the breadth of the captive’s participation in its parent’s insurance
programme, the success of the healthcare parent’s risk control systems
can be seen in a captive’s performance. Indeed, you could say that the
captive is a risk management ‘thermometer’ for its parent.
The temperature of this thermometer then should be monitored on an
ongoing basis—by the captive board, the parent’s management staff
and the insurance manager. It’s no use having a thermometer if nothing
is done with the reading it provides. For example, adverse losses (high
temperatures) can be the result of environmental factors, accidental or
deliberate actions, failures in processes or equipment, an increasingly
litigious environment, or a combination thereof.
As those in the healthcare industry know, at some point, a hospital
will experience adverse loss development and the concern is whether
that claim relates to one incident or a series of incidents. And if the