When it comes to insurance, captive cell models have become popular over the last few years as an alternative to single-parent captive models.
"Within our high performance health insurance captives, there are no more than 50 members (employers) per cell,” Doug Truax, CEO and founder of Everlong Captive Health Insurance, said. “Member cells are led and managed by a seasoned Everlong consultant that has incentive-based compensation tied to the financial performance of the cell. For employers that are members of the Everlong Captive, they are able to reinvest the profits that health insurance carriers make back into their business."
Cell captives "have been one of the most important steps in the evolution of the captive insurance space, and have become an integral component of the self-insurance market in many of the established captive domiciles,” Artex Risk Solutions said. “In fact, the growth of such vehicles now outpaces that of traditional captives."
Cell captives give employers more flexibility, a quicker setup, lower operational costs and more protection of assets as the risk is spread over multiple cells.
Also called “rent-a-captive,” cell captives are like group captives, but they have specific benefits that single-parent and group captive models do not. A cell captive "offers more security to policyholders by isolating assets and liabilities as if each participant were a separate company, called a cell, doing business with the core company," Insurance Information Institute explained.
A big difference between the two options is that cell captives are owned by someone else, while group captives are owned by a group of businesses that take on all financial and legal risk and responsibility, the institute added.
"A rent-a-captive cell facility has a core in which the owner/sponsor of the facility holds the regulatory capital and the insurance license, and manages day-to-day operations,” AIG said in an article detailing what the option offers. “The cell facility then contracts with third parties to rent and form individual cells. Each cell is segregated from the others so that insurance risk, liabilities, assets and other pertinent information are not shared or commingled.”
One characteristic they offer is that the creditors of one cell can’t access the assets of other cells in the facility, AIG said.
“Capital or collateral funding levels may vary depending on the facility or domicile requirements,” AIG said. “Some cell facilities are just one legal entity with multiple cells whereas other facilities allow for the incorporation of individual cells and thus have multiple separate legal entities.”
Marsh McLennan said that a cell captive is "insulated from the loss experience, liabilities and credit risks of other participants" to avoid potential costs like increased premiums or fees if other participants have many claims and losses.
Everlong said on its website that it uses the cell captive model and groups similar businesses together.
Choosing a cell captive for health coverage can be beneficial as it provides members within a cell the ability to control plan costs and improve employee health through innovation solutions since preventive healthcare and specialty coverages can be included in policies through captives that traditional insurance does not allow, the company adds.
Everlong describes an ideal captive member as a business that has 50 to 500 employees on a medical plan, is fully insured or self-funded and looking for alternatives, is innovative in decision-making, wishes to reduce costs while gaining financial performance and wants to further support its employee retention.
"A captive can be a powerful tool for your organization to take complete control of risk, while gaining greater financial flexibility and protection," Marsh said in summarizing why a cell captive should be considered.