Optimizing Employee Benefits through Captive Insurance

At the 2025 Captive Insurance Companies Association (CICA) International Conference in Tucson, a panel discussion titled "Employee Benefits and Medical Stop-Loss: A Partnership between HR, Finance, Risk, and Markets" examined how organizations are using captive insurance strategies to manage employee benefits amid rising healthcare costs and regulatory challenges. Panelists included Prabal Lakhanpal of Spring Consulting Group, Adam Miholic of Revantage, and Matt Drakeley of QBE. 

The panelists detailed how their organizations implement employee benefits within a captive framework. Mr. Drakeley explained that employers face three key challenges when buying stop-loss coverage in the traditional market: limited control over rates, inflexible underwriting terms, and the commercial insurance market retaining any underwriting profits. "Captives allow them to set their own rates, retain underwriting profits within the captive, and redefine the terms—turning healthcare financing into a more efficient, transparent process," he said. Underwriting stop-loss coverage within a captive often involves working with limited data. Mr. Drakeley described how predictive modeling tools are used to evaluate potential catastrophic risk exposures, allowing underwriters to compare pricing models and refine terms. This gives stakeholders confidence in setting premium rates while ensuring the captive retains control over funding and claims. This iterative process, combined with collaboration across departments, helps align the captive structure with human resources (HR) timelines and organizational objectives. 

The panel emphasized that careful alignment of regulatory approvals with HR's open enrollment periods and budgeting cycles is essential. To ensure compliance and avoid disruptions, the captive team should engage early with HR departments, regulators, and internal finance teams. Frequent communication and education sessions help align all stakeholders on timelines and expectations. As Mr. Lakhanpal emphasized, one of the key benefits of the captive approach is budget certainty. "By moving away from a 1-year market cycle and building a multiyear partnership, we not only create financial stability but also open up opportunities to enhance employee benefits over time," he explained. 

Internally, shifting from a traditional insured model to a captive structure requires focused education and careful planning. Mr. Miholic explained that his organization structures its captive at the operational level, incorporating each cell as a separate legal entity. This ensures the risks and returns for each fund stay distinct. "We didn't feel it was fair for one fund to subsidize the losses of another, given how frequently assets within those funds change," he explained. The cells are also segregated by coverage type—property, casualty, and liability—ensuring that each fund operates independently. By maintaining separate cell captives for each line of coverage, the organization safeguards its investment funds by ensuring that risks from one cell do not affect the others. This structure helps manage volatility and prevents cross-subsidization across diverse asset types. Educating internal stakeholders on how the captive operates ensures alignment across teams, helping the organization maintain benefit quality, achieve financial efficiencies, and introduce enhancements like adoption services and fertility treatments. 

Building on the discussion of how benefits are structured within a captive, Mr. Drakeley also addressed whether companies could customize benefit structures down to specific employee groups. He explained that while theoretically possible, this level of customization is rarely pursued due to potential compliance challenges and administrative complexity. "In practice, employers typically want a robust, standardized benefits package that can be applied uniformly across their workforce, rather than creating separate structures that could lead to internal complexity or compliance issues," he said. 

On the regulatory front, Mr. Lakhanpal outlined how non-Employee Retirement Income Security Act of 1974 (ERISA) benefits, such as medical stop-loss and international benefits, are generally structured without Department of Labor (DOL) involvement, though certain structures may vary, expediting implementation. However, ERISA-governed benefits—including US life, disability, and voluntary benefits—require navigating the DOL exemption process, which typically spans 12 to 18 months. "It takes about 6 months to complete the feasibility work and make the decision, but the remaining twelve months involve engaging with the Department of Labor to secure approval," Mr. Lakhanpal explained. He noted that the process has continued to evolve in recent years. The panelists discussed specific DOL approval factors, including ensuring plan savings are shared with employees, demonstrating objective benefit enhancements, contracting with highly rated insurers, and involving independent fiduciaries to oversee compliance. 

Mr. Lakhanpal noted that more organizations are exploring the use of captives for employee benefits, drawn by both financial and operational advantages. Beyond cost savings, he emphasized the diversification benefits captives provide by including employee benefits risk and how this can streamline renewals. "Once you get to the other side of implementing a benefits captive, the quantitative wins are clear—but what really stands out are the qualitative wins. HR stakeholders start to see how much easier the process becomes when you have a transparent, collaborative framework in place," he said. 

The session also covered how pension risk transfers fit within a captive structure. Mr. Lakhanpal explained that as pension funds have grown significantly in value, many organizations are increasingly focused on managing these long-term liabilities efficiently. Transferring pension liabilities through a captive arrangement allows companies to gain greater control over risk management while potentially achieving cost savings.  "Recent transactions have demonstrated savings of up to five percent when transferring pension liabilities to a captive," Mr. Lakhanpal noted. He added that the flexibility and control captives offer make them an appealing solution for companies looking to streamline pension obligations, highlighting the broader versatility of captives in managing a range of employee benefits and long-term financial commitments.