Elite Few Find Relief in Group Captive Insurance as Premiums Soar in New Orleans
Woodward Design + Build, a prominent development firm in New Orleans known for its major projects, including the Four Seasons Hotel, has experienced significant "sticker shock" with its insurance premiums in recent years. However, unlike the average resident or small business, Woodward has found a unique solution available only to an elite few – joining group captive insurance programs.
Recognizing the need to bring insurance premiums under control, Woodward, with approximately 200 employees and annual revenue around $300 million, recently became a member of two exclusive group captive insurance programs. These programs allow companies to self-insure collectively and have proven to be a game-changer for Woodward. The company's former in-house lawyer, Corey Lloyd, stated that the decision to join was a no-brainer when the numbers showed premiums were up to 50% lower, resulting in massive savings considering their substantial annual insurance expenses.
Group captive insurance programs have been around since 1950, initially designed for large companies like Walmart or Coca-Cola to manage their own risks, cutting out the middleman. The concept expanded to include group captives, allowing smaller but well-funded companies to form their own insurance companies collectively. However, group captive programs remain a minority pursuit, accounting for less than 10% of commercial insurance premiums worldwide. In the United States, the number of programs has remained relatively stable at around 6,000 for the past decade.
Tracking the industry proves challenging since most group captives are established in tax- and regulation-friendly states like Vermont and Delaware, or offshore tax havens such as the Cayman Islands. Although data on individual member companies is unavailable, anecdotal evidence suggests that these programs are gaining popularity in states like Louisiana, where insurance costs have surged.
Randy Guillot, president of Triple G Express, Inc., joined a captive program over three years ago after commercial insurance companies increasingly refused to cover trucking companies like his. Guillot's family-owned firm, based in Old Jefferson, faced rising premiums due to the litigious environment in south Louisiana and the impact of "staged accidents" scams. By participating in a captive program, Guillot experienced premiums approximately 40% lower than before joining, with the added bonus of rebates based on his company's good performance.
However, lower premiums come with added responsibility and risk. Being part-owners of the captive insurance company, members must contribute additional funds if the company performs poorly. Managing their own claims is another aspect that requires careful attention. For example, Triple G Express works diligently to resolve accidents swiftly or aggressively resists claims it deems baseless, implementing measures like truck cameras and local personnel involvement.
Sherif Ebrahim, a professor at Tulane's Freeman School of Business, believes that in theory, group captive programs can expand to cover various industries, such as restaurants or similar associations. However, he cautions that underestimating the complexity of risk management could lead to instability and potentially devastating consequences if the risks are not appropriately managed.
The success of a group captive relies on factors like the selection of the right program consultant, as Woodward did with Captive Resources, and the effectiveness of the firm overseeing risk assessment and management for the collective. Long-term commitment from members is crucial to ensure stability and success.
While group captive insurance is not a quick fix for the current insurance crisis, it offers a means of stabilizing costs in the long run. For Woodward Design + Build, joining a captive program was primarily about reducing future increases and gaining more control over their insurance. It serves as a valuable tool for the elite few grappling with rising premiums in New Orleans and seeking stability and cost management in the insurance market.