Medical Malpractice Captive Feasibility Study

A regional physicians group came to Pinnacle for their expertise in captive and self-insurance programs. This group had a moderate deductible program in place and had exceptional loss experience for over a decade. However, they were not receiving credit commensurate with these results from their insurance company. As a result, they wanted to investigate approaches to retaining more risk, including captives.

Initially, Pinnacle discussed options including segregated cell captives, single parent captives, and even risk retention groups when they considered marketing the program to other similar groups of regional physicians.

While the customer was considering the structural alternatives, Pinnacle was developing a funding analysis that could be used in any of these structures. The analysis provided estimates of expected losses in several different loss layers. The customer’s experience was used to the extent that it was credible. Then, it was augmented with industry benchmark data, especially in the higher loss layers. This analysis also examined the variability of the expected losses by layer to help the customer understand the additional risk associated with higher limits of self insurance. This analysis was also tremendously valuable when negotiations began with fronting carriers and reinsurers regarding participation in the program.

Eventually, the decision was made to form an off-shore captive providing deductible buyback coverage at a higher deductible than the current level (although not as high as the physicians initially expected). The current insurer was retained due to the customer’s comfort level with its claims service and more responsive pricing of the program due to the evidence from Pinnacle’s funding analysis.

Pinnacle then worked with the captive manager to develop the feasibility study and pro forma financial statements that become the foundation of the captive application. The application was approved as submitted and the captive is running quite successfully.