Riding the captive wave
CRI helps agents and brokers succeed in the captive market
By Michael J. Moody, MBA, ARM
Captive Resources, LLC (CRI) was formed over 20 years ago with one goal in mind: to provide businesses with the opportunity to control their insurance costs through the creation of and participation in member-owned group captive insurance companies. Obviously this was quite a novel idea because the majority of captives at that time were single-parent captives owned by large, Fortune 500 companies. However, CRI’s co-founder, George Rusu, realized that there was merit to his vision. He believed that once mid-sized business owners could see the long-term value of controlling their own insurance company, they would “get it.”
Today, with more than 5,000 captives worldwide and over 50% of the commercial insurance market now involved in the alternative risk transfer market, it would appear that many business owners “get it.” And while the captive phenomenon originated with the larger companies, the past 10 to 15 years has seen the majority of captive growth come from the mid-sized company market.
Vision realized
Rusu, who is chairman and CEO of CRI, and his team have taken full advantage of this captive growth. In fact, CRI excels in the group captive market. Today, CRI administers five of the top 10 member-owned captives in the world. It oversees combined premiums of more than $800 million in 25 different group captives, and it estimates that number will exceed $1 billion in premium next year. Over time, the majority of CRI’s captives have been domiciled in the Cayman Islands, and today their captives account for about 11% of the entire captive business in the Caymans and over 75% of the group captive business there. By any measure, it shows how successful Rusu and his group have been at catching the captive wave.
CRI has structured a unique organization that is totally committed to assisting member-owned group captives. According to Jennifer Beard, COO, while they have dabbled in other forms of captives, “We discovered that member-owned group captives were what we were good at, so that is what we do.” This is a niche that CRI has refined over the past 20 years, and now is considered by many as the world’s leader in this market. CRI provides each captive with a dedicated support team that is made up of professionals in safety and loss control, claims, investments, finance, and a team leader who is an experienced insurance executive. All of this is designed to provide the captive owners with greater control, significant cost reductions and long-term savings.
In some respects, it would appear that CRI is a captive manager, but that is not the case. According to Rusu, “CRI operates as a liaison between the captive owners and the various service providers.” This, he says, gives CRI the freedom to work with the best service providers “so as to produce the best long-term results.” Regardless of the classification of CRI’s role, it has developed a specific way of dealing with broker/partners. “Our brokers are most important to the success of CRI,” points out Rusu. “We work with our brokers in a very collaborative way,” Beard adds. It has been a good relationship that has led to continued growth for CRI.
Brokerage partners
It’s only natural to be concerned about developing relationships with outside service providers, and CRI is sensitive to that issue. When an agent or broker is interested in establishing a relationship with CRI, Beard says they will visit the broker, and “we will provide an informational seminar with the broker and tell him how the captive works and what CRI’s role in the relationship is.” She says that it is important to know up front how the captives work and what responsibilities each party has. And, she points out, it is important for the broker to know that he will continue to be the account’s broker. All of the day-to-day insurance-related issues will still be the broker’s responsibility.
One issue that is always a topic with new brokers is revenues. Most brokers are concerned about a reduction in their revenues. And because the captive is a more cost-effective risk-financing vehicle, the broker will usually end up with less commission on the captive transaction.
However, Rusu says, “It’s important for brokers to stop looking at the top-line revenue and instead focus on bottom-line profit.” Since it takes much less time and effort to service the captive account, the profit potential is still great. Couple this with the fact that you can bring in other captive accounts, and the CRI captive model can be quite profitable for the right agency.
Many of the agents and brokers that have established relationships with CRI are surprised at how many referrals they will receive from their members. And as a result, most have established separate captive divisions within their agencies.
Fact checking
Many service providers talk about their ability to work well with independent agents and brokers, but that is not always true. In the CRI business model, however, the independent brokers and agents play a critical role. Peter Gernold, senior vice president, Gernold Captive Group, First Niagara Risk Management, Inc., in Buffalo, New York, has been working with CRI since 1993 and currently has 46 members in various CRI captives.
Just as with many mid-sized brokers that are looking for ways to move into the captive market, Gernold’s group was actually pulled into a relationship with CRI. One of their largest customers informed them they were considering joining one of CRI’s captives. After reviewing the CRI program, Gernold realized the value of the CRI captive program, and his firm started to actively solicit new captive clients. Unfortunately, since the original customer had been referred to CRI by another broker, they lost that business.
In 2000, Gernold notes, his firm had been so active that they set up a dedicated unit within First Niagara to work exclusively on captive business. “That was one of the best and most positive strategic decisions we ever made,” he says.
Gernold says that the turning point for them was when “we started to see the long-term benefits to a captive were far outweighing what the standard market could do for a well-run company.” He goes on to say, “We have found that the captive can strip out the inefficiencies and additional costs and give the owners control of their programs.”
Further, he states, “CRI allows us to offer ‘best in class’ captive options without having to staff up for it.” Gernold says they enjoy an excellent working relationship with CRI. “They have great people who have learned that the best way to differentiate yourself from the crowd is to listen to members and be responsive to their needs.”
Another broker/partner that has been associated with CRI is Robert Pettit, principal at The Presidio Group in Salt Lake City, Utah. Pettit and Presidio have been involved with CRI for more than eight years. At this point, his agency has more than 40 members in CRI-related captives. Pettit realized that some agents are drawn to CRI as a defensive move to protect some of their larger customers, but he says it’s important to move past that thinking. He points out that the captive market is where the mid-sized accounts are headed, and CRI provides his agency with an opportunity to expand their service offers and can differentiate them from their local competitors. “Let’s face it,” he says, “At this point, our traditional mode of doing business is going by the wayside.”
Pettit also points to the change in the relationship that occurs with his customers. “We move more to a ‘trusted advisor’ status and become a partner in their risk management efforts, rather than merely a broker.” It becomes “a partnership to manage risks,” he says. And the captive “allows us to help the members manage their risks.” Obviously, CRI is one of the keys to Pettit’s success, and he notes that “they are a world leader in the member-owned group captives, and their service is unmatched in the industry.”
Few companies can match CRI’s 20-plus years of service to the member-owner group captive market. Even fewer can point to a 98% retention for the members of their group captives. Rusu and his associates have carved out a unique niche for themselves and have amassed an impressive success rate. As Pettit puts it, “I am a military man, and if I were going into battle, these are the guys I would want on my side.”