Julie-Anne Pearson and Declan O'Neill of Artex in Cayman provide a guide to how a captive can be the answer for senior living and healthcare risks, in this article by Captive International.
The senior living and healthcare sectors face an array of complex risks that continue to evolve rapidly. These industries must manage rising costs, navigate regulatory challenges, and address new risks such as cybersecurity — all while ensuring the highest standards of patient and resident care.
According to the American Health Care Association's Access to Care Report 2024, "Access to nursing home care is being squeezed by workforce shortages, increasing inflation and operational costs and chronic government underfunding."1
In terms of healthcare systems, the American Hospital Association (AHA) released a report in May 2024 that says: "Persistent workforce shortages, severe fractures in the supply chain for drugs and supplies, and high levels of inflation have collectively fuelled hospitals' costs as they care for patients 24/7.
"At the same time, hospitals' costs have been met with inadequate increases in reimbursement by government payers and increasing administrative burden due to inappropriate commercial health insurer practices."2
As these challenges intensify, so does the need for innovative insurance solutions that provide flexibility, control, and stability. Although many solutions are required to address the common challenges as outlined above, one such solution gaining traction in these sectors is captive insurance, which offers organisations the opportunity to manage risk and cost more effectively.
A captive needs to be a solution to a real challenge — not a solution in search of a challenge. This principle is particularly relevant to the senior living and healthcare sectors, where a variety of risk-related challenges necessitate tailored solutions.
In the commercial insurance market, the cost of coverage has skyrocketed. Additionally, many standard insurance products fail to reflect the actual risk profile of healthcare and senior living providers, leading to overpayment for coverage that doesn't meet their unique needs.
In addition, there can be a lack of clarity with claim outcomes, sometimes owing to automatic claims denials together with burdensome administrative requirements. A captive insurance structure allows these organisations to instead align their insurance programmes more closely with their actual risk profile, control costs and ensure that their policies genuinely protect them from the specific risks they face.
The senior living and healthcare sectors are experiencing significant workforce shortages, increasing the need for programme flexibility to attract and retain talent. Healthcare inequity continues to impact these industries, as many providers are non-profits serving a diverse range of communities.
For these organisations, the ability to predict and control insurance costs is essential for the provision of affordable care without compromising on quality. A captive insurance arrangement enables greater cost stability, making it easier for organisations to budget and allocate resources effectively.
As telehealth services expand and more patient data is stored digitally, cybersecurity has become a top concern. A captive insurance structure can be used to create bespoke policies for any coverages specifically excluded in the commercial market.
Inflation and the high costs associated with medical malpractice claims are further straining senior living and healthcare providers. In this economic climate, investment income from premiums becomes increasingly valuable, helping offset the rising costs of providing care.
Through their captives, organisations can invest their premiums in line with expected claim payout timelines, creating an additional income stream that can help stabilise financials even as costs rise.
Choosing the right jurisdiction for a captive is crucial. The Cayman Islands offers unique advantages that make it an ideal location for captives in the senior living and healthcare sectors.
The Cayman Islands Monetary Authority (CIMA) is experienced in regulating both sectors, taking a commercially focused approach that balances flexibility with sound regulation. The jurisdiction has appropriate risk-based capital requirements and investment guidelines, and the ability to write various levels of third-party business, making it a solid choice for organisations looking to build captives that serve a wide range of needs.
Cayman's well-developed professional services sector includes skilled insurance managers, lawyers, bankers, and accountants. This support system allows organisations to work with industry experts who understand the nuances of senior living and healthcare risks, ensuring that captives are initially structured correctly and managed effectively thereafter.
Cayman has been home to hundreds of senior living and healthcare captives for several decades and the experience from this is deeply embedded among service providers in the jurisdiction and not easily replicated elsewhere.
For healthcare and senior living providers, captives offer distinct advantages that go beyond mere cost savings.
One of the standout benefits of a captive is the ability to adjust retention limits according to an organisation's evolving needs. As providers better understand their risk profile, they can optimise their captive arrangement to reflect these insights, providing greater financial control.
We have seen a number of examples where hospital risk management teams have been able to use captive claims analysis to inform their design of risk management frameworks and procedures on the ground and in local communities. The resulting reduction in accidents, claims and ultimately insurance costs has been exceptional.
With a captive, organisations retain underwriting profits that would otherwise go to commercial insurers. These funds can be redirected to support hospital equipment, safety, or risk management initiatives, aligning insurance savings with broader organisational goals.
Artex has seen its clients establish very successful programmes whereby excess capital is distributed in the form of grants at the end of the financial year to fund out-of-budget hospital equipment purchases.
Captives allow organisations to invest premium income, providing an additional revenue stream that can help offset insurance costs. Captives also give providers more control over claims management, potentially reducing legal expenses and loss adjustment expenses (LAE). This control translates into better claims outcomes and enhanced financial stability.
For organisations in the senior living and healthcare sectors considering a captive, Artex offers several areas of advice.
Before forming a captive, organisations should conduct a detailed feasibility analysis of their current insurance programme. This analysis helps to ensure that a captive aligns with the organisation's specific goals and needs and serves as a baseline for evaluating the captive's long-term effectiveness.
Working with an experienced insurance broker and insurance manager to achieve buy-in from all parties at the start can provide valuable insights and support.
Captive managers with prior sector-specific experience can provide meaningful advice, manage regulatory compliance, and foster a long-term partnership. Hearing from peers who have already established captives can offer real-world perspectives and guidance.
Having due diligence documentation in place early can streamline the captive formation process. Establishing a well-structured business plan, defining the roles of each team member, and maintaining clear communication with stakeholders also contribute to smooth operations and long-term success.
Stakeholder engagement is crucial, as it ensures alignment with organisational objectives and transparency regarding the captive's benefits.
In an environment of financial constraints and regulatory scrutiny, captives provide senior living and healthcare organisations with a strategic risk management tool that aligns with their mission to provide high-quality, affordable care. By reducing reliance on the commercial insurance market, improving cash flow through investment income, and customising coverage to address unique risks, captives empower these organisations to adapt to an ever-evolving risk landscape.
The complex nature of risks in the healthcare and senior living sectors calls for innovative, flexible, and cost-effective solutions. Establishing a captive in the Cayman Islands is efficient, with CIMA approval timelines typically six to eight weeks, subject to a full and complete application submission.
Captive insurance offers significant advantages that address financial stability and contribute to the broader goal of enhancing care for patients and residents. With the Cayman Islands as a supportive jurisdiction and expert guidance from professionals such as Artex, senior living and healthcare organisations can confidently leverage captives to secure their future.
Read the original article published by Captive International
1"Access to Care Report 2024," American Health Care Association, 2024. PDF file.
2"America's Hospitals and Health Systems Continue to Face Escalating Operational Costs and Economic Pressures as They Care for Patients and Communities," American Hospital Association, May 2024.
