Captive services: to outsource or bring in-house

Every captive or risk retention group (RRG) has a wide range of services that it relies upon to operate ranging from programme management to actuarial reserving to premium pricing to claims management and treasury services.

However, how many of these should remain operated by outside agencies and how many should be brought in house? That was the topic debated at one session at the Vermont Captive Insurance Association’s (VCIA) annual meeting.

In a discussion group titled Bringing Services into your Captive, Chris Heckman, chief risk officer of MCIC Vermont and Julie Bordo chief executive and president of PCH Mutual Insurance Company, talked about the pros and cons of both options.

As Heckman and Bordo pointed out, in the early years of operating a captive or RRG, it’s typical to outsource many of these services. However, what if you’re now in the position to consider bring some of these services in house – how do you make that decision? What metrics should you consider? Which services should you consider?

They agreed that outside agencies can provide key help in a wide range of services – however, this is always at a cost of fees, some of which – especially actuarial services – can be substantial.

However, appointing someone in house to carry out those services also has its perils, as you have to choose the correct staff with sufficient experience.

Succession issues were also mentioned as being vital. If, for example, an actuary was hired to work in house for a captive, just one actuary would not be enough as holidays or unplanned illness would result in them being unable to do the required job.

Bello stressed that this is also an issue for out of house service vendors – if a team retires in close succession, then that’s a problem for a client who expects to get the best advice or service from an outside vendor.

According to Heckman the recent push for employees to want to work from home has been good in terms of opening companies up to recruiting staff who might not be local but who are still talented enough to join the company, again bolstering in house teams for any captive.

And finally both Heckman and Bello underlined that when services are brought in house, it’s vital to make sure that they are fully absorbed into the culture of a company, as this is seen as vitally important for employee development and retention.