Change is constant in the insurance business. Such is the case when Avizent integrated the specialty service expertise of Frank Gates and Attenta, two of the premier third-party administrators (TPA) in the claims management industry, having a combined 100 years of experience in risk and claims management. Frank Gates and Attenta were originally integrated in March of 2007. Further integration occurred on April 1, 2008, when the organization adopted its current identity—Avizent. In addition to the name change, they had expanded their service offerings as well. The expansion would provide employers with a single source for risk management, third-party claims administration and medical cost containment services.

But even before the changes were announced, the company had a strong commitment to the alternative risk market. In fact, the Alternative Risk division has been active since 1998, according to Rick Stasi, chief operating officer for the division. He indicates that the division’s mission is to develop a variety of programs on the alternative risk side where they could promote their other risk management services.

The Frank Gates Service Co. had long ago established itself as an innovative, national claims TPA organization. Many of their services had led the industry, and they wanted to continue that trend within the risk management segment. As a result, Stasi was charged with developing their risk management presence in the late 1990s.

Initially, the Alternative Risk division directed its efforts at the group captive niche. However, over time, Stasi began to see the opportunities available from working with mid-sized agents and brokers who “did not have the specific expertise to form their own captives.” Frequently, says Stasi, these agencies did, however, have “a number of good sized accounts or group/association clients.” After reviewing this situation, he believed that this is where they could best assist the brokerage community. In order to accomplish this goal, he realized that they needed to offer a platform that would provide the agent with maximum flexibility.

Accordingly, Stasi points out, “We set up a rent-a-captive (RAC)—Atlantic Gateway International, Ltd.—in Bermuda.” The RAC can provide many of the advantages similar to those of a captive, without the ownership or management responsibilities. Additionally, the capital commitment is typically greatly reduced as well.

When Bermuda passed its segregated account legislation in 2000, Stasi says they decided to take advantage of it in order to further enhance the flexibility of the RAC. Avizent utilized the new law to convert the RAC into a “protected cell captive.” By doing so, they greatly limited the liability of the various RAC participants.

Over the last 10 years, Avizent has been instrumental in developing or partnering with more than 60 alternative risk programs of which 36 are involved in the RAC. “And while we still do more traditional group/association captives, as well as single-parent captives,” Stasi notes, “the primary focus of late has been on the RAC.”

He adds, “While mid-sized brokers are intrigued with alternative risk transfer techniques, frequently they just don’t have the staffs to devote to putting them together.” This is where Avizent believes it can build long-term partnerships by providing value-added services to the mid-sized agents and brokers.

Most mid-sized brokers are not in the position to take on the additional costs of a captive feasibility study. This is where Avizent can assist in moving the process along. Stasi points out, “We don’t require any additional fees to provide these types of services since most of the costs are offset by other revenue-generating services which are offered on an unbundled basis via the RAC.” As a result, he says, “It is more cost effective for the broker to work with us rather than hire an independent consultant.”

By using Avizent’s RAC facility, he indicates this “becomes more of a ‘turnkey’ operation for the broker.” The RAC provides significant flexibility with regard to the individual cell structure, and because it is already up and running, it expedites the entire process. He also notes that there are no formation costs or approvals to obtain from domicile regulators. In essence, Stasi says, “We have removed most of the barriers to entry.”

Participants in the RAC come from three general areas. Stasi indicates that one of the most active groups is program administrators. He points out that Avizent “has already done a number of programs with Target Markets members, as well as other MGAs and wholesalers.” According to Stasi, this group currently accounts for about one-third of the RAC’s business. He notes that program administrators like the ability to be able to offer a proprietary program to their retail agents.

An additional one-third of the RAC’s business comes from retail agents and brokers. They are finding that mid-sized agents and brokers like the idea of being able to offer exclusive insurance products to their clients. And since the broker is designing the program for their individual needs, maintaining a closed program has major advantages for them. The remaining participants are groups and associations that are interested in finding alternative risk solutions for their members, but they are not in a position to tackle a group captive on their own.

One of Avizent’s most successful partnerships has been with franchisees of several national restaurant chains. Stasi points out that this started out as a group captive about six years ago. The captive has been quite successful and currently maintains an average 15% loss ratio, thus allowing the captive to be able to return over 40% of the premium to its members. These kinds of results “are only available when you band together and develop a program and incorporate intense claims management and proactive loss control.”

Despite this success, he says, some of the restaurant owners “did not or could not assume the kinds of financial risks associated with a group captive.” For those franchisees that do wish to participate in the group captive but cannot meet the collateral capital demand, Avizent recently announced a second newly created program available through the RAC facility.

Partnering with a program administrator (United Alternative Risk), Avizent will be assuming a portion of the underwriting risk, thus lowering the risk and capital demand for those restaurant franchisees not capable of doing it all on their own. This should greatly increase the availability of the program for retail brokers to offer their restaurant accounts.  

Another problem area for many employers is health insurance. Employers nationwide have been experiencing rate increases in the 20% to 30% range, according to Stasi, “despite little or no increase in loss experience.” Additionally, he notes persistent rumors indicating that health insurers are “going to begin reducing commission levels on health insurance and health-related coverages.”

In order to assist mid-sized employers (50-plus employees) and their brokers, Avizent began utilizing its RAC facility to design a unique excess of loss product, which went into effect January 1, 2010. Excess of loss coverage is established to be used when an employer self-funds its employee health coverage. There are currently several good excess of loss markets out there, but Stasi points out that they frequently require the employer to take a higher retention.

For many mid-sized employers, this puts the self-funded option out of reach. But by using the RAC, Avizent can reduce the retention level from $250,000 to a more manageable $25,000, thus making the self-funding option available to many more small to mid-sized employers. And because the transaction involves only the excess of loss coverage, “it does not require any ERISA involvement.” He says interest in this product has been high.

Despite the continuing soft insurance market, interest in the alternative risk transfer segment remains strong. In the past, utilization of alternative risk approaches was normally limited to Fortune 500 companies; however, today, mid-sized employers are finding ways to band together to establish creative solutions for their needs. While there are a number of reasons for this continued interest, according to Stasi, it typically comes back to greater control of the insurance buying process. This trend was one of the primary reasons why Avizent moved into the alterative risk market in the first place.

“Mid-sized insurance buyers are no longer willing to subsidize accounts with poorer loss experience,” Stasi acknowledges. As these better accounts have gained more sophisticated knowledge of insurance, he says, they now realize that “even in a soft market, they are paying too much.”

Mid-sized brokers may still be seeing limited competition to their books of business from others marketing alternative risk solutions, he points out. But with the recent commitment by both Marsh and Aon to the middle market accounts, all of that will change. Pressure, by way of offering alternative risk solutions, will begin to come from all directions and will soon make it mandatory for mid-sized agents and brokers to have established some sort of alternative risk partnership.

Avizent’s creative risk solutions that can offer a variety of flexible options may well be a partnership worthy of further investigation.