Firms employ captives to reduce employee benefits bill

More companies are setting up their own captive frameworks to keep their employee benefits bill down, according to research by global professional services firm Towers Watson’s specialist forum, Captive User Group.

According to the firm, over the past decade the number of captives that have implemented employee benefits worldwide has increased nearly 10-fold, from nine in 2004 to 77 today.

Towers Watson polled over half the employee benefit captives operating globally on their current use of captive vehicles and how they anticipate this will change in the next five years.

The main priority for two thirds (67 percent) of the group that have implemented a captive vehicle is to save cost on employee benefits and other financial benefits. A further 24 percent claimed their impetus was to control and improve their claims data, which in turn would help proactively manage benefit costs.

Mark Cook, director at Towers Watson said: “With the growth in employee benefits and large increase in costs for many types of benefits, companies have been prompted to set up their own captive frameworks to help keep their costs down to sustainable levels. Sometimes there will be no solution available from the external market, sometimes the costs from traditional insurers will be too high, but cost containment is always at the heart of any captive decision.”

Nearly two thirds (62 percent) of those questioned use their captive for death and disability benefits and medical insurance, while 11 percent also include defined benefit retirement savings as well. In the future, nearly half the captive users (48 percent) are also considering a captive pension transaction, either in the next 3-5 years (36 percent) or within the next 12 months (13 percent).

Cook added: “The breadth and depth of captive use continues to expand as more companies realise the potential to mitigate the ever spiralling costs of employee benefits."