Why does a captive change how a CEO handles risk management?
Owning the risk pulls the chief executive into the operational detail
Queen's argument is about attention, not about money directly. Once a company carries a meaningful retention, a claim is a cheque the owner writes, so the chief executive starts spending time on the mundane operational detail that actually produces claims. He says captives create the best risk management possible for that reason, and works it through with a claims study from his own MGA.
The mechanism Queen describes is simple. A captive behaves like a large self insured retention, and once the retention is meaningful the loss is felt by the owner rather than absorbed by a carrier. That, he says, is when a chief executive starts taking time over things that would otherwise slip their mind and are not the kinds of things chief executives typically worry about.
Key takeaways
Queen treats a captive as a large self insured retention, and says the retention is what makes an owner attend to operational detail.
His MGA's own claims work traced a seasonal concentration of severe claims back to pressure wounds following ordinary illness.
The practical consequence is that a measure CMS already tracks becomes a claims control once the company carries the loss itself.
His example comes from his own book. Studying claims at his MGA, his team found a seasonal concentration, and behind it a concentration in sepsis and wrongful death. In their world those are frequently downstream of a pressure wound.
The plaintiff's framing, he says, is that a nursing home put profits over patients and did not staff or reposition adequately. The data pointed somewhere else: a significant share of those pressure wounds followed an ordinary illness, because a frail resident who gets sick loses the reserves the skin needs to repair itself.
That reframes vaccination from a nice to have into a claims control. Queen notes CMS already monitors nursing home vaccination rates. His question is who inside the operator actually acts on it, and his answer is that a carrier discussing underwriting credit rarely moves anyone, while an owner facing the cost of the claim does.
How it happens
From retention to attention
- 01The company takes a meaningful retention, so a claim is money it pays rather than money a carrier pays.
- 02Claims data is examined for cause rather than filed, because the cause is now the owner's problem.
- 03The root cause turns out to be operational and unglamorous.
- 04Management attaches real consequences to the operational measure, which is what changes the claim count.
From the conversation
Matt Queen
Captive Insurance Attorney and MGA Executive, Author of Modern Captive Insurance
“Consequently, you'll see the CEO taking much more time on things that honestly will slip their mind and just are not the kinds of things CEOs typically worry about.”
Transcript
Read the full transcript 10 turns
Matt QueenI do think that CAPTAS create the best risk management possible because the CEO is now suddenly very interested in the mundane aspects of risk management. I also think that CAPTAS work really well with anyone who has a large self-insured retention, which is exactly what you're talking about. CAPTAS almost feel like a large deductible. And I think they're very healthy in that space. So if you've got a large, and
Matt Queenby large, I mean, anything more than $100,000, if you've got, you know, six figures of retention within a CAPTAD, that's a meaningful check that you have to stroke whenever the claim arises or the disaster strikes. Consequently, you'll see the CEO taking much more time on things that honestly will slip their mind and just are not the kinds of things CEOs typically worry about. By way of example, we study claims in our MGA and we determined that 57% of
Matt Queenour claims all arrive between December and April. And what we learned from that is a disproportionate amount of those claims involve sepsis and then wrongful death. Well, in our world, sepsis and wrongful death is oftentimes downstream from a pressure wound. So what the plaintiff's attorneys will frequently say is that we are putting, you know, in nursing home, we're putting the profits over the patients. We're not staffing adequately. We didn't turn a reposition to patient. Accordingly, they then develop a pressure wound
Matt Queenbecause we're just a bunch of greedy capitalists. But what the data actually show is that a significant chunk of those pressure wounds are actually downstream from COVID, the flu, or getting a cold, and they have a domino effect where someone gets really sick. The largest organ in your body is your skin. The skin no longer has the energy necessary to repair itself because your skin is always repairing
Matt Queenitself. And then you develop a pressure wound because these people are frail by definition. They're already in a nursing home. So what this means from the operator's perspective is that vaccinations, which are monitored by CMS, they definitely look at nursing home vaccination rates. Vaccinations are not just like a nice thing to have
Host. Vacc
Matt Queeninations are actually one of the most important things you can possibly do to reduce the frequency and severity of pressure wound claims. Now, who's going to pay attention
Matt Queento that? Is that something the CEO is always looking at? Is that something the CEO cares about? Obviously, a nursing home CEO would prefer that all of the residents have vaccines. That's just common sense. But are they actively monitoring it? Are they putting the administrator's bonuses on the line? Are they chastising people if the vaccination rates slip for any
Matt Queenreason? Well, when you start to look at the claims and the frequency and severity, and then you do the root cause analysis from them and you start to find these strange artifacts in the data, that's useful for an insurance company. And the insurance company can get up there and start whining, but you don't vaccinate enough and we're not going to give you a good deal on underwriting unless you data it off. But when you have the captive in place, now all of a sudden the CEO is saying, "Whoa, whoa, we're not talking about 3% off the grocery premium. We're talking about the difference between a quarter million dollar claim
Matt Queenor I have a huge bonus that I can give my number one general who's probably going to leave me for my biggest competitor if I don't." That's where a captive comes into play. Those are the kinds of things that carriers know, and they definitely do try to tell people. Look, insurance carriers, everyone should be less cynical for just three seconds. Insurance carriers do know everything. Nobody
Citations
Sources
- CMS, Nursing Home Care Compare quality measureshttps://www.cms.gov/medicare/quality/nursing-home-improvement/care-compare
The views expressed are those of the featured guest, drawn from a recorded conversation, and reflect their own professional experience. Nothing on this page is insurance, tax, legal, or investment advice. Consult your own advisors about your specific situation.
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