Captives
What a captive is.
A licensed insurance company that works for the people it insures. The difference from a carrier is not what it does. It is who the surplus belongs to.
Float
A carrier’s business is holding your money between the day you pay and the day a claim is settled.
In medical liability that is years. The money earns the whole time, and the earnings belong to the carrier. In a captive the same money earns the same way, and the earnings are credited to the physicians who carry the risk.
Surplus
In a year when claims come in under the premium, the difference is surplus.
A carrier books it as profit. A captive credits it to the physicians, and at renewal it carries forward instead of being wiped. Over a career that is the asset.
The captive year
Standards
Practicing physicians write the standards for admission in each specialty and publish them.
Admission
Applications are read by practicing physicians against those standards. Only the best performing physicians are admitted. Admit, admit on terms, or decline, with a reason.
Premium
An independent actuary prices the premium for the specialty and the state from the same loss data a carrier uses, with a margin for the unexpected. It is paid, and it becomes reserves held for the members.
Claims
Claims are reported, defended and resolved under published guidelines with physician oversight. The member keeps the rights the policy gives them.
Audit
An auditor examines the financial statements. The actuary opines on whether the reserves are adequate for the claims still open. Both reports go to the regulator.
Surplus
What remains after claims, reinsurance, expenses and required capital is credited to the members under the line’s rules. At renewal it carries forward.
How a bad year is paid for
Three things stand between a bad year and the physicians.
The pricing margin
Built in by the actuary. It absorbs the first part of the miss.
Reinsurance
Pays the large claims above the retention. One catastrophe is the reinsurer’s loss.
Capital
Held by the captive and tested every year. The domicile requires it to be adequate for the risk written.
Members are not assessed for a bad year. The pool, not the physician, absorbs it. Surplus is smaller or zero, and the account grows again the next year.
Real insurance
The courts have said what makes an arrangement insurance. The platform is built to each of the four.
Risk shifts
The risk of a claim moves from the physician to the insurer. Premium leaves the practice and is not the practice’s money any more.
Risk is distributed
Many insureds, many independent risks. No one member’s bad year is the pool’s bad year.
The risk is real
A malpractice claim or a building fire is a fortuitous loss, not a business expense dressed up as one.
It behaves like an insurer
Licensed, capitalised, priced by an actuary, audited, reinsured, and it pays claims.
It exists to pay claims. The captives that failed in court were built for tax, priced by nobody and reinsured by no one. This one is priced by an actuary, audited, reinsured, and regulated.
What independence costs
An independent practice pays more than a system for the same things. This is where.
| Retail premium | A single practice buys at the rate set for its class. A system with a captive pays for its own record. The gap is the price of buying alone. |
| Gaps found at claim time | Without leverage to change the form, a practice accepts the standard policy, with exclusions written for the general market. Most are discovered when a claim is denied. |
| Staff time | Every practice manages its own carriers, reviews its own policies and runs its own renewal, repeating work a pool does once for everyone in it. |
| No voice in terms or claims | One practice cannot influence coverage terms, claims handling or how its premium is structured. The carrier decides, and the practice renews or leaves. |
| A broker paid by both sides | Many brokers are paid by the carrier as well as the practice. The practice rarely knows which interest was served when the policy was placed. |
What a member pays the captive is printed in the proposal: capital contributed at entry, the operating company’s fee, the actuary, the audit, the reinsurance. Nothing is hidden in the premium.
What a captive is not
Not a tax strategy
The reason to join is the surplus. This platform gives no tax advice; tax questions belong to the member’s own advisers.
Not a discount
Premium on day one is set by an independent actuary from the same loss data a carrier uses. The difference is where the unspent part goes.
Not a guarantee
Surplus depends on claims. In a bad year there is less or none, and the account grows again the next year.
Not a club
Admission is decided on the applicant’s record against published standards by practicing physicians, and only the best performing physicians are admitted.
Questions physicians ask
What is a captive insurance company?
A captive is a licensed insurance company formed to insure the people who fund it, rather than the public. It collects premium, pays claims, buys reinsurance for large losses and holds the rest as reserves. What is left after claims and expenses is surplus, and in a captive that surplus belongs to the physicians who carried the risk instead of to a commercial carrier.
How is a captive different from a commercial insurance carrier?
The difference is who keeps the money that premium earns. A commercial carrier keeps its underwriting profit and the investment income on its reserves for its shareholders. A captive returns that surplus to the physicians who paid the premium. The coverage, the claims handling and the regulation are otherwise the same.
Is a captive a tax strategy?
No. This platform does not present captives as a tax strategy or a tax shelter and does not offer tax advice. The reason to use a captive is ownership of the surplus: unspent premium, underwriting profit and investment income stay with the physicians who carried the risk. Any tax consequence is a question for the physician’s own advisers.
What is surplus?
Surplus is what remains of premium after claims, reinsurance and operating costs are paid. Commercial carriers call it underwriting profit. In this platform it is credited to the physicians who carried the risk, under the rules of each line, and it grows as the reserves behind it earn investment income.
The lines
Live
Medical malpractice
Physicians, physician assistants, nurse practitioners and physical therapists.
