RM Solutions – Case Study: truck dispatch services Captive Program Stabilizes Global Casualty Program Case Study: truck dispatch services Captive Program Stabilizes Global Casualty Program - rmsolutions.ca truck dispatch services

Case
Study: Captive Program Stabilizes Global Casualty Program

This
Canadian-based industrialtruck dispatch services manufacturer with global operations relied
on protection provided by a traditional casualty insurance program.
The program consisted of general/products liability and automobile
liability policies in the primary layer with relatively insignificant
deductibles and an umbrella liability policy providing the required
excess limits.

A
1996 automobile accident in the USA resulted in a tragic fatality
that was assessed as having a very large settlement potential against
the client. The reserve was promptly posted at US$ 5.5 million that
required notice to the umbrella liability insurers. The casualty
insurance premiums in truck dispatch services the next renewal and in subsequent years were
directly impacted by the reserve established for this claim. The
automobile liability premium increased by $750,000 and the Umbrella
Liability policy by about $300,000. This represented a 50% premium
increase annually and it was apparent the insurers were looking
to recover its expected settlement costs directly from the client.
A comprehensive marketing initiative in the following year did not
provide competitive insurance options to the client.

The
Solution

The client accessed a captive insurance company, a wholly
owned subsidiary of its parent company, and made effective
use of this insurance “platform” to restructure
its Global truck dispatch services program. This program was structured
such that the client self-insured and funded the 1st $1
million primary layer. A reinsurance policy provided Excess
Automobile Liability and Umbrella Liability cover to required
limits.

The
client was concerned about a higher than expected accumulation
of losses, particularly in the first years of the program
before the captive could build the financial resources to
meet its loss obligations. truck dispatch servicesFinite reinsurance was accessed
that allowed the captive insurance company to stabilize
its loss experience over a longer-term.


This captive program was immediately successful and its successes
were sustained over the long-term. The individually priced components
of the program were competitive with the overall premium quoted
by the traditional markets. The captive netted reinsurance ceding
commissions that were captured for the benefit of the client. The
“long-tail” settlement nature of this casualty risk resulted
in an accumulation of interest income from reserves that peaked
in year five.

Most
important, the fact that this risk was partly self-insured and shared
within the group had a great impact on the corporate culture of
the client, as a philosophy emerged that losses were to be avoided
and mitigated rather than transferred. This captive program was
expanded to support affiliated operating truck dispatch servicescompanies and the parent
corporation has achieved greater control of its insurance and risk
management programs.

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