A Different Perspective on Captive Insurance

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As the CFO of SGT 2000 Inc., a founding shareholder of Fleet Resolutions, Canada’s first and foremost trucking industry captive insurer, I was perplexed to say the least at reading (Markel Insurance president and CEO) Mark Ram’s condemnation of trucking captive insurers. I can only conclude that all captives are not created equal, for the picture painted by Mr. Ram does not in any way reflect the reality of our captive.

A well structured captive will not fall prey to the pitfalls (mentioned in Ram’s Truck News column and in Motortruck’s Nov/Dec issue feature on insurance) and will incorporate the following characteristics :

* The captive is not one big pool of funds where all shareholders are at the mercy of the claims performance of their partners. Funds are segregated by shareholder and although some risk sharing occurs among the shareholders, they are largely the masters of their own financial fate.

* The total losses for which a shareholder can be responsible in any policy year are capped. There is a reasonable point at which “real” insurance kicks in and the shareholder ceases to be financially responsible. No incessant cash calls here.

* There is a maximum dollar limit to any claim payable out of the shareholder’s funds. The captive is not there to cover catastrophic losses.

* If the shareholder has a good claims performance, its unspent premiums are returned in the form of a dividend.

* The shareholder is not legally obliged to remain in the captive if it ceases to be price competitive. No guaranteed sinecure here for the assorted hangers-on.

* The price of admission (a share) is small in relation to the first year’s premium and becomes inconsequential over the long term.

* While some of the peripheral costs indicated by Mr. Ram are part of the formula, they are minimal in relation to the premium and most are also part of a traditional policy, though their cost is buried in the traditional premium.

* Most importantly, the principal criterion for admission is a total commitment to safety without which the most solvent of carriers will not be accepted. This is the best assurance that the captive’s loss performance will be much better than that of the industry.

I think that Mr. Ram is absolutely right to alert those interested in joining a captive to the potential pitfalls resulting from selecting the wrong one. As with all things, caveat emptor.

For SGT 2000 Inc., becoming a shareholder of the right captive has proven to be the correct decision. It has been cost-effective, it has caused us to heighten an already strong safety focus and it has proven to be a valuable opportunity to strengthen our ties with some of Canada’s leading carriers.

Gilles Caron

Vice President Finance

SGT 2000 Inc.

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