Captives for Workers' Comp: One Overlooked Area

Wednesday, February 2, 2011 | 0

By James J. Moore
J&L Risk Management Consultants

Over the last four years, captive insurance arrangements have become more prevalent in our business. That is not to say that captives have not existed in Workers Compensation markets for very long. I had come across them in the early 1990s. They were known as offshore insurance.

The company was a very large South Carolina lumber operation. They were moving their Workers Compensation from the carrier where I was adjusting claims to this new kind of insurance. My question to them, as it is today - By, the way who will be handling your claims? I kept in contact with the insured to see how things were going and there were a few residual claims.

The lumber processing company had no answer to that question. I was told at the time - and I still hear the same thing today - That is not a major concern.

Without covering the operations of a captive, I wanted to issue one caveat. You are now more like a self-insured. The claims adjusting company is really spending right out of your bank account. The quality of the claims adjusting company should be a major consideration.

Why I pointed out the South Carolina lumber company is that over the next year when I had to contact them on a few claims issues, they would vehemently complain about the claims adjusting.

Injured employees were not getting paid, medical providers were lighting up the switchboard with calls on very late bills. The lumber company was paying fines and fees due to late payments. Even the attorneys that represented the Workers Comp claims adjusting company were being paid very late.

The bottom line is that captives are just about the last forefront for smaller employers to be able to cut Workers Comp costs. I think there will be an explosion of captive insurance over the next 20 years unless the IRS creates rules that may affect their operation.

However, investigating who will be handling your captive Workers Comp claims will become even more critical. Asking that one question will save many headaches and time later as there is claims development.

James J. Moore is owner of J&L Risk Management Consultants in Raleigh, N.C. This column was reprinted with his permission from his blog, http://blogs.cutcompcosts.com/