Are Benefits Captives The Answer?
After looking to the traditional market, buyers of employee benefits sometimes find that the coverage sought is unavailable, too costly, or doesn't fit within the employer's benefits package, said Kathleen M. Nilles, an attorney with Gardner, Carton & Douglas in Washington, D.C.
“So it's within that context that we see employers looking at the possibilities of self-financing their employee benefits through the use of an insurance captive,” she said. “The biggest challenge is getting approval from the U.S. Department of Labor in a timely manner.”
Ms. Nilles spoke on the topic last month at the South Carolina Captive Insurance Association's annual conference in Charleston, S.C.
She added that an organization wanting to implement a new benefits program “doesn't want to conceive it in year-one and implement it in year-two,” which is so far the case with Decatur, Ill.-based Archer Daniels Midland Company, an agricultural processor and the second company to go through the DOL approval process. ADM submitted an application to the DOL in February of 2002 and is still awaiting approval.
The approval process for employee benefits captives is expected to be expedited once ADM gains approval, however. Once ADM gets the green light, she said, there could be a flood of applications for employee benefits captives.
Ms. Nilles said her law firm and others have been contacted by organizations interested in writing employee benefits in a captive using the expedited process.
In 2000, the DOL gave approval to Columbia Energy Group to use the Vermont branch of Columbia Insurance Corp. Ltd. in Bermuda to reinsure long-term disability benefits.
South Carolina also has approved legislation that would allow captives to write employee benefits and other coverages.
“The main thing everyone is waiting for is the Department of Labor,” said Clayton Ingram, manager of business development and alternative risk transfer services for the South Carolina Department of Insurance. “As soon as they give the go-ahead and provide a template for other companies to follow, we can proceed with employee benefits.”
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 6, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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