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.
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- 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.
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