Cell captives offer attractive insurance alternative

CORPORATES worldwide are increasingly moving away from traditional insurance products towards more strategic risk management through self-insurance programmes, known as Alternative Risk Transfer (ART) structures.

Captives – insurance companies that only insure the risks of its owners – offer insured significant material advantages including cost reduction, increased reinsurance capacity, improved attitudes to risk management, and cover for certain risks which would otherwise be uninsurable. However, because of the considerable costs associated with forming and running an insurance company, captives were for many years the preserve of large multi-national companies.In 1993 a new insurance structure, the cell captive, was developed by Guardrisk, South Africa’s leading specialist insurance group.The advent of cell captives extended the self-insurance concept to a far broader range of companies, especially smaller companies.Essentially, owning a cell captive is like owning your own insurance company or captive, without incurring the inherent costs and administrative burdens.The cell captive insurer’s specialist management team undertakes the underwriting, reinsurance, claims management, investment and accounting functions for all cells.This keeps costs down and gives cell owners access to a broad base of insurance skills.The premium is allocated directly to the individual cell and is used to pay claims, buy reinsurance, make investments and pay an administration fee to the insurer.Each cell covers only its own risks – there is no cross subsidisation – and the cell owner shares in underwriting profits.The success of the cell captive structure comes down to basic common sense: because the profitability of each cell is directly related to the level of claims in that cell, the client has a real financial incentive to practice prudent and effective risk management.Within a culture of sound risk management, companies are able to determine their total risk exposure more accurately, allowing them to finance their risks in the most cost effective manner possible.For further information please contact, Jurgen Hellweg Managing Director Guardrisk Insurance Company of Namibia.However, because of the considerable costs associated with forming and running an insurance company, captives were for many years the preserve of large multi-national companies.In 1993 a new insurance structure, the cell captive, was developed by Guardrisk, South Africa’s leading specialist insurance group.The advent of cell captives extended the self-insurance concept to a far broader range of companies, especially smaller companies.Essentially, owning a cell captive is like owning your own insurance company or captive, without incurring the inherent costs and administrative burdens.The cell captive insurer’s specialist management team undertakes the underwriting, reinsurance, claims management, investment and accounting functions for all cells.This keeps costs down and gives cell owners access to a broad base of insurance skills.The premium is allocated directly to the individual cell and is used to pay claims, buy reinsurance, make investments and pay an administration fee to the insurer.Each cell covers only its own risks – there is no cross subsidisation – and the cell owner shares in underwriting profits.The success of the cell captive structure comes down to basic common sense: because the profitability of each cell is directly related to the level of claims in that cell, the client has a real financial incentive to practice prudent and effective risk management.Within a culture of sound risk management, companies are able to determine their total risk exposure more accurately, allowing them to finance their risks in the most cost effective manner possible.For further information please contact, Jurgen Hellweg Managing Director Guardrisk Insurance Company of Namibia.