Multi-Unit Franchisee Magazine Issue II, 2016 | Page 20

The Captive Insurance
Program Opportunity
By Everett Newman, Jr.

Most corporate buyers of insurance have heard the terms “Captive Insurance” or “Captive Insurance
Program”. However many business owners, including franchisees, franchisors, and their associations,
may have differing levels of understanding of this concept.
The goal of this article is to help readers gain clarity on the subject of captive insurance programs and
provide basic knowledge on just how a captive program could benefit their business performance and
profitability.
WHAT IS A CAPTIVE?
A captive is an insurance company created and wholly owned
by one or more non-insurance companies to insure the risks of
its owners (example: a group of franchisees, a franchisor, or
their association could form a captive). Captives are a form of
self-insurance (with full reinsurance protection) where the
insurer is owned wholly by the insureds. They are typically
established to meet the risk management and insurance needs
of its owners or members.
One of the main reasons businesses form a captive program is
to earn underwriting profits and investment income based on
the performance of their individual company. Because
members have the potential to earn underwriting profits and
investment income, participation in a captive insurance
program is viewed as one way to transform the insurance
expense line of a P&L into a profit source.
A SUCCESS STORY: THE RESTAURANT FRANCHISE CAPTIVE
PROGRAM
The Restaurant Franchise Captive Program (RFCP), an
exclusive program of York Risk Services Group, is an excellent
example of a group captive that was formed for the benefit of
restaurant franchisees. This program began in the midst of
California’s “hard market” in 2004, at a time when workers’
compensation insurance rates were skyrocketing and many
businesses failed or left the state.
Two franchisees – one a Carl’s Jr. and the other a Denny’s –
partnered to start the RFCP and began writing insurance
business on July 1, 2004. The primary goal of this venture was
to gain control of their own insurance costs. By getting access
to claims management and embracing safety services, these
two franchisees were able to drive the cost of their workers’
compensation, general liability and property insurance down to
the lowest level they’d ever experienced. In the 11 years since
inception, the RFCP has delivered:
• A successful, growing captive insurance program with over
$23 million in annual premiums
• $10.4 million in underwriting returns to members
• Historical loss ratios of 30 percent compared to 55-60
percent industry norms (this is the ratio of claims costs to
premiums paid, so lower is better!)
• Over 2,000 locations in over 30 U.S. states
• Over 20 restaurant brands insured in the program

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A CAPTIVE PROGRAM THAT EXCEEDED ALL EXPECTATIONS
The RFCP program has more than exceeded the expectations
of its members when first formed in 2004. Thanks to the efforts
of members working with their program manager and broker to
manage claims and safety issues, members have received
millions of dollars in underwriting profits, turning a business
expense into a profit center.
A founding member of the RFCP told us, “Getting into the
RFCP was one of the best decisions I’ve made as a business
owner. I have been in the program since its start in 2004, and
the RFCP has done more to enhance my profitability than any
other single thing I could have done.”
Among the benefits to franchise owners:
• Underwriting Profits that directly enhance your company’s
profitability
• A market-competitive insurance rate
• Superior Safety and Claims Management Services that
reduce your claims frequency and drive costs to the
lowest possible level
• Comprehensive coverage designed to meet the insurance
requirements
of
your
franchisor
(for
Workers’
Compensation, General Liability, Property & Auto
Coverage)
• Full insurance and reinsurance protection from an “A”
Rated insurance carrier
• Greater control and say in how your claims are managed
• The lowest net cost for insurance, which provides a
competitive advantage in the franchisee marketplace
Captives are the fastest growing segment of the commercial
insurance marketplace. Chances are a captive could be a good
fit for your company and satisfy your insurance needs. For
many franchisees, franchisors, and their associations, a captive
program would provide a greater degree of control over
insurance costs while also providing a welcome new profit
stream.
Everett Newman, Jr, CIC. is the managing vice president for
York Alternative Risk Solutions

2/23/16 4:23 PM