Captive Insurance and Why It Works for Grow West
Maintaining continuity in ag retail operations depends on workers having the support and benefits they need to do their jobs, day-in and day-out. Insurance also provides protection for the company and its assets. But that protection is getting expensive and creating a lot of headaches for company leaders and employees alike.
Grow West has employed a unique strategy to make sure that protection and assurance is available to the company and its workforce, all at lower price points than policies available from increasingly costly insurance marketplace options. Captive insurance has created financial efficiency, flexibility and business continuity for the ag service provider and its employees.
How captive insurance works
Grow West employs captive plans for property, general liability (including workers’ compensation and automotive liability) and employee health insurance. Such plans pool the financial resources of a group of similar companies — one of Grow West’s captives has more than 40 members — to collectively fund insurance coverage for participating companies. A company must meet thresholds for financial performance to access a captive. It also must have the internal resources to manage the program for its employees.
Captive insurance is not self-insurance and it’s not the open insurance marketplace. It’s a hybrid program that offers the full marketplace’s coverage options as the building blocks of specific policies participants need. Being part of a captive presents companies the size of Grow West new insurance options and often lower costs that would ordinarily only be possible for much larger companies. When premiums paid into the captive are higher than the claims paid out, that money is invested on behalf of member companies.
“It’s not easy to do as a standalone unless you’re a very large company,” said Grow West President and CEO Ernie Roncoroni. “It’s worked well for our business. There are some minimal administrative hurdles to overcome, but they’re not as large as you might think once you get the process started.”
A big reason why captive insurance is a good fit for Grow West and similar companies is how it helps manage risk. A participating company must be financially viable to earn membership. But given its ability to contribute its share to the captive group, a member company opens up a lot of flexibility in coverage plans and helps manage costs over time, according to Grow West Human Resources Vice President Samantha Hanley.
“Captives are more long-term plans that help hedge against market risks. Members are all sharing risks in a captive. You know the insurance policies are going to be there. You know you’re going to have good coverage and the ability to design your own plans,” Hanley said, adding Grow West began working with captive insurance in 2004. “We have plan flexibility and can select who and what we want. With plan design and network access options, you can choose whatever plan design you want and what you want to cover.”
Why there’s so much need for captive insurance choices
Grow West’s workers’ compensation, general liability and auto captive, Terra, is administered by Alternative Risk Underwriting (ARU) in Schaumburg, Illinois. The proprietary program started in 2002 is designed to protect its members from insurance marketplace volatility, providing stability in what’s become a major cost for companies like Grow West, according to ARU Vice President Ramon Robles.
Members of the Terra captive become network members with the same insurance companies as they would if they were buying insurance on the open marketplace. But they now have greater control over what otherwise could cause health insurance costs to spike because of general market conditions. This enables them to offer quality insurance plans that meet employees’ needs.
“Right now, we’re experiencing one of the most difficult markets in a generation,” Robles said. “The need for programs like Terra stems from the need to control costs and have more stability in such a volatile marketplace. In the standard marketplace, you don’t have that control and the market can push for increased rates even if you are performing well. With this captive, Grow West can control their insurance costs.”
Entering a captive amounts to “betting on yourself” as a company. It does require a little more work at the company level, as you’re normally controlling an insurance plan’s administration, including handling claims, losses and investment.
“If you perform well and have the right safety practices in place, then in the long term, you’re a candidate for a captive,” Robles said. “We look at loss experience in determining whether it will work. But if you’re a profitable risk for the insurance company today, chances are you’ll be a good fit for a captive.”
The work required to maintain captive insurance
There is more hands-on work involved with maintaining captive insurance coverage. Claims over a specified dollar amount are reviewed thoroughly to determine the most practical steps forward, whether it’s liability litigation/protection or referring employees to medical specialists after health insurance claims.
But because participating companies are handling claims and managing those other processes, they can be much nimbler because they’re not waiting on corporate claims adjusters and administrators.
“I would say that direct involvement in the claims process is worth it in the long run because it’s shortening the overall time that claims are open,” Hanley said. “It provides us a way to maintain continuity in insurance coverage for our employees because everything is handled much more quickly. We’re not waiting for a larger insurer to come out. Anytime we need a claims adjuster or administrator to come out, they’re working only for the captive and its members, so they work quickly too.”
The Grow West team is also involved in leading the captives in which they participate; Roncoroni sits on the board of directors for Terra, and other company leaders are involved in safety regulation at the captive that ladders up to requirements for participating companies. In their roles, the Grow West leaders help shape best practices that contribute to sustained cost efficiency and coverage quality of the captive’s policy options.
“When we saw higher distracted driving claims a few years ago, we installed dash cams on all our vehicles and offered distracted driving classes. By participating this way with the captive, we were able to identify a risk trend and a strategy for reversing it to reduce costs for all captive participants,” Hanley said. “We have a seat at the table to talk about employee safety and loss prevention and evaluate what we’re doing as a company to raise awareness and reduce losses.”
That participation has had benefits beyond Grow West’s human resources management. Company leaders’ participation in leading its captives helps build a culture of safety, Roncoroni said. It takes work, but in the almost 20 years since working with captive insurance, it’s been worth it for Grow West.
“We’re actively involved with the captives, other companies, best practices and training programs. It takes more work than just sending a check to an insurance company,” Roncoroni added. “Being in captives has made us a better company. I’m not saying that all of this just magically happens, because it does take work. But this has taken Grow West to a new level.”
Talk to Hanley if you’d like to learn more about captive insurance and how it can work for your company.