Self funding of employee benefits growing - June 2004
Funding employee benefits through wholly-owned captives and cell captives is a growing trend both internationally and locally. That's according to Francois Schaap, Executive: Marketing of Guardrisk Life which launched SA's first life cell captive insurance company just five years ago.

The initial focus of the local life cell captive market was third-party orientated, for example credit life and funeral business, but this has expanded rapidly to include and focus on employee benefit programmes. Traditional insurers, facing rising payouts on the back of the HIV/Aids epidemic, have increasingly presented employers with the equally unacceptable choices of premium hikes or benefit cuts. In sharp contrast, life cell captive owners are "self-regulated" by sound risk principles rather than limited by some of the definitions, maximum covers and exclusions that most traditional insurers impose.

Within the risk financing and captive scenario, employers not only reap the benefits of prudent risk management but they can maintain benefit levels whilst actually reducing costs. Internationally it has been reported that between 5% and 15% can be taken off long-term disability benefits in captives. Similarly, 10% to 15% savings can be achieved by placing group term life benefits in a captive; 2% to 10% on medical stop-loss coverage and 10% to 15% by funding international benefits through a captive.

"The credibility of the life cell captive market is clearly evidenced by the fact that the majority of South Africa?s major life insurers have formed their own cell captive facilities," says Schaap who believes that the potential to fund employee benefit schemes through captives could equal or even exceed the success the model enjoys in the short-term market.

A recent Tower-Perrin survey of 60 Fortune 500 companies in the US and Europe on the use of captives for employee benefits supports this: 38% of respondents say they currently use a captive for EB (mostly in Europe) or are in the process of implementing one, and 22% are considering doing so within the next two years.