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Agency partners: CRI
Captive Resources helps middle market agents access the alternative market
By Michael J. Moody, MBA, ARM
The next few years in the commercial property and casualty insurance market should prove to be quite interesting. A recent study by the Risk and Insurance Management Society, “2009 RIMS Benchmark Survey,” indicates that the pricing in the commercial marketplace continued its downward trend in 2008. In fact, the survey notes that “average premiums in almost every line of business contributed to a 9.4% drop in the average total cost of risk.”
And, for the most part, pricing thus far in 2009 has been stable for many lines of coverage. But in some respects, the current situation is somewhat akin to being in the eye of a hurricane. While things are quiet now, destruction in the financial markets is swirling around the edges. Thus few believe that the current pricing will remain past the end of the year. Many experts believe that 2010 could be a watershed year regarding pricing, with double digit rate increases being the order of the day.
Regardless of the exact extent of the increases next year, one trend that is sure to continue is the interest in captive insurance companies. Many captive domiciles are already predicting an active year for 2009, despite the soft market. And while there are many reasons for this continued interest in captives, one of the primary ones is the involvement by mid-sized commercial accounts. This is a trend that has continued for the past 10 to 15 years, and it shows few signs of slowing anytime soon.
Opportunity for middle market brokers
Movement into the alternative market can be a little intimidating for some brokers. Many of them believe that the realm of captives is better left to Fortune 500 accounts. This was the case with the Rough Notes 2001 Marketing Agency of the Year, Litchfield Insurance Group of Torrington, Connecticut.
When Robert G. Phelan, ARM, CRIS, Litchfield’s president and CEO, first started considering captives, he was “concerned they were too complicated and only used by big brokers and big companies.” Phelan was sure he would not understand them and was equally certain that his clients also would not understand them. Despite these misgivings, Phelan decided to attend an introductory educational session about captives in 1995. To his surprise, “Not only did I understand the concept, it made a lot of sense to me as well.”
Since this initial presentation in 1995, Phelan has been an advocate of captives. One of the outgrowths of the 1995 presentation was the forming of a group captive, and Phelan “put the first account into the captive in January 1996.” One of the concerns that Phelan and other mid-sized brokers have regarding captives is how to find the talent to put together captive deals.
Few mid-sized brokers can afford to retain the professionals necessary to provide a state-of-the-art captive management team. Several alternatives are available to brokers that are interested in pursuing the captive movement. Certainly most of the international brokers have captive management capabilities, and some of the larger insurers have captive insurance programs. However, both of those options present a number of disadvantages that typically preclude them from serious consideration.
Other viable options
Another way to go, as Litchfield found out in 1995, is to locate a third-party expert in captive formations. This was the case for Phelan, who attended the initial presentation of a company called Captive Resources, LLC (CRI). The firm was formed over 20 years ago with one goal in mind: to provide businesses and their brokers with the opportunity to control their costs via the creation of and participation in member-owned group captive insurance companies.
CRI Executive Vice President Thomas R. Ullrich points out that currently CRI has 26 active group captives including five of the top-ten member-owned captives in the world. In addition, one of CRI’s group captives, Raffles Insurance Ltd. has been selected for the prestigious industry honors, the 2009 Captive Insurance Companies Association’s (CICA) Outstanding Captive Award.
Raffles, which was formed in 1984, was recognized by CICA for the creative uses of a captive insurer. Ullrich notes that each of CRI’s captives has a dedicated support team that is made up of professionals in areas such as safety, claims, investments, and finance, as well as a team leader who is an experienced insurance executive.
Currently, CRI has relationships with about 200 brokers nationwide. Ullrich points out that CRI is “trying to provide a viable alternative for mid-sized agents and brokers and their clients.” He points out that CRI realized a “number of years ago, that captives can have a positive long-term effect on both the agency and the prospective captive owner.” Captives can provide a stable market for their owners by “moving them away from the cyclical pricing of the traditional market.”
Mid-sized brokers such as Litchfield have found that by partnering with service providers such as CRI, it can provide clients not only with viable and cost-effective risk-financing options, but also with value-added service opportunities. Today, CRI allows agency members to assume some of the servicing of the accounts in areas where the agency has expertise in areas like loss control and claims management, while CRI supplements this effort with valuable assistance. Providing unique services can provide the broker with revenue possibilities.
Quality is the key
Phelan points out that it is not enough to find good service providers; you need to get the best and CRI “is in a class by themselves.” He also says, “You know, those guys at CRI were geniuses. They were able to take a business model that was only reserved for the largest companies and find a way to scale it down for mid-sized organizations.”
While the formation of a group captive can take significant amounts of time and money, Phelan says, “What CRI has provided for brokers like us is a ‘turnkey solution’ for access to a group captive.” With regard to the turnkey aspects, he says, “CRI captives are not dramatically different from the traditional insurance market; all we have to do is find qualified prospects.”
Over the past few years, Litchfield has moved more towards the construction niche, Phelan notes. In fact, he has just formed a new company, Construction Risk Advisors, that is dedicated to construction risk management. Phelan also talks about the power of captives in his recently published book Broke—The Broken Contractor’s Insurance System and How to Fix It.
He says that the better construction accounts are “getting more focused on safety and loss prevention”—not only because it is the “right thing to do” for their people, Phelan says, but also because it is good from a financial standpoint. Additionally, he points out that “being able to be viewed as a safe contractor has major market value. And, we feel that the way to attract better contractors is by giving them an option via the captive that rewards them for their efforts.” Using one of CRI’s captives “lets us provide that option to clients and prospects.”
Litchfield’s relationship with CRI has been a mutually beneficial one, Phelan notes. “Overall the clients we have in CRI captives have had outstanding results.” He goes on to note that “Collectively our clients have saved millions of dollars,” and, he says, all of these accounts “couldn’t be happier. Bottom line, it always pays to invest in finding quality service providers, and CRI is one of those providers.”
Conclusion
It’s clear that the alternative insurance market is now a major part of the commercial marketplace. Many experts believe that the alternative market now accounts for more than 50% of the total commercial insurance market. Emphasis recently has centered on middle market business. With partners like CRI, they can enter the market quickly and still provide a quality product to their clients and prospects.
Phelan points out that “CRI has developed excellent relationships with banks, reinsurers, actuaries, claims management firms, and even domicile regulators. For those brokers that are still concerned about the captive concept, “Find out more about them and give them a shot.”
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