Chapter · January 998 doi: 10. 1007/978-1-4615-6187-3 10 citations reads 2,488 author: Some of the authors of this publication are also working on these related projects
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10.Retentionandcaptiveinsurance (1)
- Bu sahifa navigatsiya:
- Concepts
- Table 10.4 Estimates of the Captive Insurance Market
- Suggestion for Additional Reading
- Table 10.5 Firms Consulted in Planning Self-Insurance
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Summary The willingness of corporations to retain more risk, particularly at the lower levels of exposure, has been examined in this chapter. The captive insurance phenomenon has resulted in part from the decision of risk managers to reduce pure insurance costs and transaction costs and to self-insure.
insurance company.
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Table 10.4 Estimates of the Captive Insurance Market 1980-81 i) 1991 ii) 1991 iii) Caribbean: Bermuda 1030-50
1175
1323 Bahamas 20-30
34
31 Barbados n.a.
190
209 Cayman Islands 200-250
404
367 Netherlands Antilles 20-25
n.a.
n.a. Panama 10-15
n.a.
n.a. Turks and Caicos - n.a. 30
Virgin Islands (US) - n.a. 8
Europe: Guernsey 110-120 202
204
Isle of Man 15-20
122
111 Gibraltar 8-10
n.a.
n.a. Ireland (Dublin) - 51 60
Luxembourg - 161 148
Cyprus 3 n.a. n.a.
Asia and Pacific: Hong Kong 5-10 n.a.
n.a.
Singapore 2 48 45
United States: Colorado 28 35
22
Tennessee 3 21 15
Vermont 1 212 207
Hawaii - 20 21
Illinois/Delaware/Georgia 10-15
25
15 Arizona (Credit-life insurance) 175-200
180
n.a. British Columbia - n.a. 14
Australia: - - 3 Africa: Cape Verde - - 12
Notes:
i) Kloman, H.F. and D.H. Rosenbaum, "The Captive Insurance Phenomenon," The Geneva Papers on Risk and Insurance, vol. 7, April 1982. ii) Captive Insurance Company Directory, Tillinghast Company, Stamford, 1992. iii) Business Insurance, March 30, 1992. n.a. = not available.
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Suggestion for Additional Reading Doherty, Neil, A., Corporate Risk Management: A Financial Exposition, New York: McGraw-Hill Book Co., 1985, Chap. 11 & 12.
Athearn, J.L., Pritchett, S.T. and J.T. Schmit, Risk and Insurance , St. Paul, Minnesota: West Publishing Co., 6th ed., 1989. Baglini, Norman A., Global Risk Management , New York: Risk Management Society Publishing Co., 1983. Bawcutt, P.A., Captive Insurance Companies: Establishment, Operation and Management , Cambridge, UK: Woodhead-Faulkner, 1982. Borch, Karl, Economics of Insurance , Amsterdam: North-Holland, 1990. Conder, J.M. and G.N. Hopkins, The Self-Insurance Decision , New York: National Association of Accountants, 1981. Goshay, Robert C., Corporate Self-Insurance and Risk Retention , Homewood, Illinois: R.D. Irwin, Inc., 1964. Greene, Mark R. and J.S. Trieschmann, Risk and Insurance , Cincinnati, Ohio: South-Western Publishing Co., 7th ed., 1988. Mehr, R.I. and B.A. Hedges, Risk Management: Concepts and Applications , Homewood, Illinois: R.D. Irwin, Inc., 1974. Rejda, George E., Principles of Insurance , Glenview, Illinois: Scott, Foresman and Co, 3rd ed., 1989. UNCTAD, The Impact of Captive Insurance Companies on the Insurance
Dec. 1984. Vaughan, Emmet J., Fundamentals of Risk and Insurance , New York: J. Wiley & Sons, 5th ed., 1989. Williams C. A. and R.M. Heins, Risk Management and Insurance , New York: McGraw-Hill Book Co., 6th ed., 1989. 16
Appendix 10.1 The Management of Retention Programs The services for the administration of funded-retention programs (self-insurance or captives) is often provided by expertise available outside the firm. These services often include reinsurance arrangements, investment, and accounting. Claim adjusting and settlement are most often handled by in-house staff. A study by Conder and Hopkins (1981) revealed that the expertise needed is similar for property and liability risks and relies mainly on brokerage firms, but for employee benefits the percentage of specialized consulting firms and actuarial firms is much larger.
Table 10.5 Firms Consulted in Planning Self-Insurance Property Liability
Benefits Consulting firms 15.5% 14.8%
28.9% Insurance brokers 50.0 60.6
38.7 Insurance companies 24.6 25.4
31.7 Law firms 6.3 11.3
13.4 Accounting firms 4.2 5.6
5.6 Actuarial firms 2.1 1.4
19.0 Others 2.8 2.8
2.8
Note: The percentages do not add to 100% because more than one answer is possible. This table is drawn from Conder and Hopkins (1981, p. 56).
1 The non-optimality of full-insurance, when the insurer faces increasing administration costs, is a well-known result in insurance theory. The most cited paper is probably J. Mossin, "Aspects of the Rational Insurance Purchasing," Journal of Political Economy, vol. 76, 1968, pp. 553-568. See also:
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J.P. Gould, "The Expected Utility Hypothesis and the Selection of Optimal Deductibles for a Given Insurance Policy," Journal of Business, vol. 42, 1969, pp. 143- 151. V. Raviv, "The Design of an Optimal Insurance Policy," American Economic Review, vol. 69, 1979, pp. 223-239. H. Schlesinger , "The Optimal Level of Deductibility in Insurance," Journal of Risk and Insurance, vol. 48, 1981, pp. 465-481. N.A. Doherty and H. Schlesinger, "The Optimal Deductible for Insurance Policy when Initial Wealth is Random," Journal of Business, vol. 56, 1983, pp. 555-565. 2 See L. Eeckhoudt, J.F. Outreville, M. Lauwers and F. Calcoen, "The Impact of a Probationary Period on the Demand for Insurance," Journal of Risk and Insurance, vol. 55, June 1988, pp. 217-28. 3 An example of loss simulation is given in "Financial Applications for Risk Management Decisions," San Rafael, California: Fireman's Fund Insurance Company, 1983.
4 This rule has been suggested for the selection of an automobile insurance deductible by Professors A.E. Hofflander and L.L. Schklade, "A Rule for Least Cost Selection of Collision Deductibles," Annals of the Society of Property and Liability Underwriters, March 1967, pp. 5-17. 5 In the United States the term seems to have been first used in a study of workmen's compensation by H.M. Teaf, Self-Insurance and Workmen's Compensation in Pennsylvania, Washington: US Department of Labor and Industry, Special Report no. 4, 1934. 6
risk, whereas self-insurance is a technique of retention." 7 For Vaughan (1989, p. 30) "From a purely semantic point of view, the term self- insurance represents a definitional impossibility." 8 See Rejda (1989, p. 48) or Athearn et al. (1989, p. 60). The Webster's Dictionary defines self-insurance as "insurance of one's self or of one's own interest by the setting aside of money at regular intervals to provide a fund to cover possible losses." 9 See also Greene and Trieschmann, (1988), p. 56-57, for a presentation of the requirements for effective self-insurance and the limitations of loss retention. 10 P. McDonnel, A. Guttenberg, L. Greenberg, and R.H. Arnete, "Self-Insured Health Plans," HCFA Review, vol. 8, no. 2, 1986. 11 Business Insurance, January 26, 1987, p. 3.
12 See H. Schlesinger and E. Venezian, "Insurance Markets with Loss-prevention Activity: Profits, Market Structure and Consumer Welfare," Rand Journal of Economics, vol. 17, Summer 1986, pp. 227-38. They conclude that investment in loss-prevention can increase an insurer's potential to earn underwriting profits. The joint production of insurance and loss-prevention also has implications for insurance regulation and for the overall market efficiency. 13 Felix H. Kloman and D.H. Rosenbaum, "The Captive Insurance Phenomenon: A Cautionary Tale?"The Geneva Papers on Risk and Insurance, vol. 7, April 1982, pp. 129- 51.
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14 See Bawcutt ( 1982, pp. 7-10). 15 The Internal Revenue Service of the United States, in 1977, has contended that a single-parent captive was nothing more than a funded programme of the parent corporation and, as such, no income tax deduction should be allowed for premium payments to such a captive. This ruling was considered very important for the development of the captive insurance market since the vast majority of captives are owned by United States companies. Although the issue was challenged by some companies, it is still considered enforceable. In one of the last case, i.e., the tax status of Bluefield, Inc of Bermuda, a wholly owned insurance captive of Mobil Corporation., the court agreed, saying that the arrangement did not result in the transfer of risk. 16 See an article in the review ReActions, August 1984, p. 42, "The Taxman Closes in on Captives." However, the United States has the severest tax position when compared to Canada or the European countries where deductibility is permitted to a certain degree. 17 In international operations, a captive insurer, under a fronting arrangement, may be able to reinsure the locally admitted insurer which in turn may be willing to write broader insurance than would otherwise be the case. This has been considered as a negative aspect of captive insurer operations in developing countries ( UNCTAD, 1984). 18 Baglini, (1983, p. 54). 19 Moshe M. Porat, "Bermuda Captives: Investments, Instruments, Rates of Return," CPCU Journal, March 1983, pp. 21-30. 20 "Groups Mobilize to Use New Risk Retention Act," Business Insurance, October 20, 1986, pp. 1 and 96-100, "Risk Retention, Purchasing Groups Proliferate," Business Insurance, December 28, 1987, p. 11. J.Y. Rastallisand M. Butterfield, "Captives and Risk Retention Groups: Deciding When They Are Appropriate," Risk Management, March 1988, pp. 32-44. 21 The criteria for the formation of a captive are discussed in details by Bawcutt (1982, Chap. 2). View publication stats View publication stats Download 442.01 Kb. Do'stlaringiz bilan baham: 
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