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In exchange, successful captive owners will be rewarded with a stable insurance market, potential profits, improved cash flow and, most importantly, control of their own destiny once the next hard market hits.

Medical Professional Liability Insurance in Captives
Since 1975, many hospitals and physician groups have used captives as a vehicle to insure their professional liability exposures. By current estimates, there are in excess of 125 healthcare-related captives and risk retention groups. These enterprises can take many forms. Some of the popular choices of captive types are:
  • Single-Parent Captive–This type of captive may be appropriate for a large hospital or chain of hospitals.
  • Association Captive–This type may be suitable for physicians who are members of a common trade association, for example, a state medical society.
  • Sponsored Captive–In this structure, each member’s assets are protected in a separate cell within the captive. This may be useful to separate individual hospitals from each other and from physician groups, specific classes of physicians, etc.
  • Risk Retention Group (RRG)–This is a captive-like entity that can be formed under the Federal Liability Risk Retention Act of 1986. An RRG may provide advantages for physician groups who practice across state borders. This advantage comes from the fact that a RRG effectively is allowed to operate as a licensed insurer in all 50 states as long as the RRG has obtained a license from its chartering state and has raised sufficient capital.
The climate is right for medical professional liability insurance in captives. Prospective captive owners should look for domiciles with a favorable captive insurance law, a comprehensive service provider infrastructure and a strong regulatory commitment. Ideally, there should be a regulatory team that is dedicated to alternative risk transfer mechanisms, such as captives.

Paul J. Struzzieri is a consulting actuary in Milliman’s New York office.