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alternative risk products and services.
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Who Benefits?

Are your premiums too high?

A guaranteed cost buyer seeks predictable insurance expenses that protect the corporate balance sheet. However, as the cost of its guaranteed cost policies increases, a search for a platform that provides greater control over costs begins.

Keystone is able to solve this challenge by leveraging a large deductible framework and using a captive to provide budget stability in managing deductible obligations. This hybrid combination creates a stable, long-term cash flow solution that mirrors the benefits of a “guaranteed cost” approach yet minimizes the volatility of conventional loss sensitive plans. Dramatic savings are achieved through unique claims platform options that provide greater control over costs.

Example
Situation:

Manufacturing Firm looking for more control over claims to reduce costs.

Problem:

Unwilling to move to commercial large deductible plan due to LOC requirements and fear of large loss volatility.

Solution:

Keystone hybrid large deductible plan using a captive to finance deductible.

Results:
  • Paid loss volatility transferred to the captive through payment of premium.
  • Total cash flow requirements were similar to current GC premiums.
  • Captive satisfies collateral/ LOC requirements in a tax efficient manner.
  • Insured reduces cost through greater control over claims and accessing the resulting underwriting profits and investment income through the captive.
Too many policies and too few options?

Often insureds within certain industries, associations, or affinity groups are unable to consolidate their insurance programs and instead rely on a large number of individual polices to meet their insurance needs. This approach can create administrative nightmares and premium inefficiencies, resulting in higher costs while also producing a short list of competing carriers for the business.

Keystone is able to solve this challenge by creating a unique partnership with the insured(s) and the insurance company that allows for the best of both worlds: a consolidated insurance program using a captive to aggregate individual policies and a reward structure tailored to individual and group loss performance. Dramatic savings are achieved through unique claims platform options that provide greater control over costs.

Example
Situation:

Hospitality firm looking to simplify program administration and reduce costs.

Problem:

Lack of majority ownership across all properties created a need for individual workers’ compensation policies, creating layers of administration and less than optimal premium terms.

Solution:

Keystone adapted group captive approach.

Results:
  • Individually premiums are developed by policy through one issuing carrier.
  • Total premiums for the portfolio of properties are aggregated and reinsured to a captive owned by the hospitality firm.
  • The hospitality firm retains frequent and predictable losses within the captive and transfers the catastrophic exposure to the commercial insurer.
  • Insurer simplifies program administration under one consolidated program.
  • Hospitality firm reduces cost through greater control over claims and accessing the resulting underwriting profits and investment income through the captive.
Do you have uninsured exposures?

Insureds with unique operations that do not fit conventional markets or those who have experienced substantial losses that were not contemplated by commercial underwriters are often left uninsured in key areas of exposure. These firms have no choice but to draw on their own sources of capital or debt to address the financial challenges of a claim not covered by insurance. Seeking a source of outside capital or securing financing from banks when an operation is impaired by a large loss can be punitive if available at all.

Allowing your client to design coverage that addresses these uninsured or underinsured exposures and/or meaningful exclusions under their commercial insurance program can ease the financial burden of an unforeseen financial loss.

Example
Situation:

Food Distribution Company looking to obtain comprehensive product recall insurance given their unique exposures.

Problem:

Exclusions under a traditional policy created coverage gaps that exposed the insured’s finances. As a thin-margin business, a substantial food borne illness recall would significantly impact net income and operating cash flow.

Solution:

Keystone manuscript, claims-made policy form with limits funded through premium paid to a captive.

Results:
  • A modest annual premium under a captive policy is deferred from taxation, which allowed the insured to efficiently and rapidly accumulate a dedicated asset base for this infrequent yet substantial exposure.
  • In the event of favorable loss experience, underwriting profits and investment income within the captive accrue to the owners of the business.
  • Direct access to the reinsurance market allows for the expansion of limits and coverage in future years.
Is achieving cost certainty important?

The challenge with insurance is the need to price the product before knowing what a major element of their costs will be (i.e. losses). Commercial fixed-cost solutions may solve the cost certainty needs of insureds for one term, but lack of visibility into the impact of losses and market conditions on future policy years will create a significant uncertainty with clients’ long-term operating budgets.

Keystone can help these insureds attain the economic benefits of assuming risk while providing the underwriting acumen to effectively design a fixed-cost financial solution for insurance obligations within their control.

Example
Situation:

Contractor with solid risk management looking for a loss sensitive approach.

Problem:

Operating companies needed a “fixed cost” product in order to justify overhead expenses to clients during bids. Traditional loss sensitive plans had too much uncertainty and claims experience was too good to remain in guaranteed cost.

Solution:

Keystone hybrid large deductible plan using a captive to finance deductible.

Results:
  • The sum of premiums for the large deductible and captive policies created a “fixed cost” for the business and provided the justification for insurance expense in the bid process.
  • The variable cost of actual loss experience was transferred to the captive with underwriting profits, resulting from solid risk management, accruing to the owner of the company.
Do you need evidence of insurance?

For insureds with more difficult exposures, procuring highly rated insurance to meet critical state, vendor, bank or licensing requirements might be challenging without a considerable premium outlay. If it were not for these third party requirements, the business would simply self-insure their risk.

Keystone is able to marry the benefits of self-insurance while meeting the requirements for evidence of coverage to third parties through a highly rated, qualifying compliance policy arrangement. By reinsuring all of the risk under this policy to a captive arrangement, the business simply pays a modest fronting fee to address their need to evidence coverage.

Example
Situation:

Nursing Home Operator requiring professional liability coverage for licensing requirements and bank loan covenants.

Problem:

Jurisdictions of operation were very unfavorable and insured loss experience was poor. Traditional insurance premiums were nearly equal to the policy limit, making coverage unaffordable.

Solution:

Keystone “fully funded” program with highly rated commercial policy secured in full by a captive.

Results:
  • Highly rated policy simplified state, vendor and bank compliance requirements through conventional certificate issuance.
  • Client assumed full control of financial decisions involving claims which resulted in lower loss costs and a substantial net cost savings in comparison to the traditional risk transfer options.
  • Claims-made structure allowed for the rolling over of underwriting profit and investment income, which allowed the option of offering greater policy limits in future years.
Changes in regulatory compliance creating gaps in coverage?

A diverse financial services firm was impacted by changes in regulatory compliance that resulted in new commercial insurance exclusions and substantial gaps in their liability coverage. In addition, a subsequent shift in traditional underwriting philosophy was putting upward pressure on their standard E&O premiums and retentions. These exposures, particularly regulatory actions resulting in fines or penalties, created intolerable volatility and the potential for “surprises” from large claims that could negatively impact company earnings.

Keystone is able to solve this challenge by customizing a direct captive reimbursement policy that filled coverage gaps and created a tax-efficient, dedicated source of funds for “shock losses” under the new regulatory framework.

Example
Situation:

Financial Services Firm looking to adapt insurance program to changes in their regulatory compliance needs. 

Problem:

Commercial market was unwilling to offer comprehensive insurance that resulted in unpredictable gaps and uninsured exposures.

Solution:

Keystone customized direct captive reimbursement coverage to “spackle” cracks or gaps in coverage and uninsured exposures.

Results:
  • Balance sheet volatility for uninsured risk transferred to the captive through payment of premium.
  • Large loss exposure for regulatory actions was distributed within captive that insured multiple lines of coverage and a statistically significant number of independent risk units.
  • Dedicated source of tax-efficient, rapidly accumulated funding for large loss exposures.
  • Compounding of reserves within the captive created a “shock absorber” that provided stability for annual budgets and forecasts of self-insured obligations.
Do you have complex exposures?

Whether a company has a diverse investor group, complexity from state or federal regulations, or intricate risk transfer requirements, having multiple obstacles at play can be overwhelming. Keystone has deep in-house underwriting, analytical and financial resources that simplify creative alternatives for you and your clients.

Highly rated carrier and reinsurance partners support Keystone’s customized solutions that leverage the flexibility of a captive platform to deliver uncommon results for your client.

Example
Situation:

Nationwide Transportation Company looking for an efficient P&C solution for a complicated web of corporate and franchisee insurance needs.

Problem:

Insurance needs varied due to interstate commerce and specialized individual state requirements. Current insurance program involved multiple carriers including loss sensitive and guaranteed cost arrangements, resulting in a fragmented and resource- intensive plan.

Solution:

Keystone hybrid large deductible plan using a captive for corporate risks; “bolt on” group captive for franchisee risks.

Results:
  • Consolidated program to reduce expenses, simplify administration and leverage risk management resources to reduce claims.
  • Captive vehicle stabilized budgeting and provided transparency to align interest in performance across the enterprise.
  • Combined reinsurance reduced expenses and aggregate loss retention for the franchisees in the group captive.
Do you have multiple subsidiaries?

Having an expansive organizational chart can make internal allocation of insurance-related expenses an onerous task. Add in the potential for significant variance in loss volatility amongst subsidiaries/locations, and the expense management system can begin to break down, pushing your insured towards expensive and inefficient commercial risk transfer arrangements.

Leveraging a central platform for assuming risks creates a shock absorber for losses from individual locations while offering the stability of a “fixed cost” solution. Risk management services can be efficiently delivered to empower business units to reduce costs while providing incentives and accountability.

Example
Situation:

Nursing Home Operator growing rapidly through acquisitions looking for ways to reduce workers compensation costs.

Problem:

Decentralized operation stretched resources and individual locations were too small to assume any risk.

Solution:

Keystone hybrid large deductible plan using a captive to finance deductible.

Results:
  • Individual locations transferred risk under the large deducible through a fixed cost premium to a centralized captive.
  • Captive efficiently distributed the risk, creating stability of insurance costs across the enterprise and eliminating any volatility at the location level.
  • Risk management resources were also centralized with the cost of the program borne by the captive and not the facilities.
  • The captive owner aligned interests in risk management by allocating underwriting profits to support individual premium reductions to those locations meeting defined metrics along with the best claims performance.
  • The captive’s reporting package included metrics that allowed management to more quickly identify and respond to positive and negative trends at the individual facility level.
Is cost reimbursement important?

Businesses that rely on third-party cost reimbursements under contracts with their clients often feel trapped by the need to purchase a guaranteed cost insurance product. This fear is borne by the concern that loss sensitive “tail” obligations will create a financial burden in future years that may not be reimbursable. Also, several contacts, specifically Medicare, require certain arm’s length justification for loss sensitive programs that conventional insurers typically don’t provide.

Keystone is able to solve this challenge by using a captive to finance an insured’s large deductible obligations. This hybrid combination creates a stable, long-term cash flow solution that mirrors the fixed-cost benefits of a “guaranteed cost” plan. In addition, the captive routinely satisfies all of the justification requirements under Medicare and other third-party contracts. Net cost reductions are achieved through a tailored claims platform that provides greater control over losses thus improving performance under third-party contracts.

Example
Situation:

Regional Hospital looking to reduce insurance expenditures associated with their professional and general liability coverages while complying with both state level and calendar year cost reporting.

Problem:

Insured purchased guaranteed cost policies as the traditional large deductible approach did not efficiently meet both state and internal annual cost reporting.

Solution:

Keystone hybrid large deductible plan using a captive to finance deductible.

Results:
  • Long-term cost savings through claims management and access to underwriting profits within the captive.
  • Captive complied with cost reporting requirements and eliminated the inherent uncertainty of dealing with complicated, “down the road” adjustments under traditional loss sensitive arrangements.
Investors concerned by insurance liabilities?

A major concern investors have with workers compensation insurance can be the lack of transparency into long-term or “tail” obligations under loss sensitive programs. This objection often pushes management companies, who represent the interests of these investors, towards more expensive guaranteed cost solutions. By selecting this option, management companies are ceding control over claims management and premium development to the insurance company, which can often lead to frustrating escalation of insurance expenditures.

Keystone’s financial solutions will solve the “tail” objection.

Example
Situation:

Retirement Community Developer looking to share economics of their enterprise across a diverse investor group. Investors were concerned with “tail” exposure of loss sensitive arrangements.

Problem:

Expenses for commercial insurance were steadily climbing due to unfavorable losses and the resulting cost was eating into investor profits.

Solution:

Fixed cost premiums for individual properties were paid into a centralized captive solution that shifted and distributed the risk of individual “tail” exposures to the portfolio of insureds under management.

Execution of a tailored risk mitigation/claims handling platform provided greater control over claims.

Results:
  • Insured assumed and aggressively managed frequent, predictable risk to generate underwriting profit in the captive through significant claims cost reduction.
  • Unforeseen volatility of individual property loss experience is muted by the larger portfolio of insureds which absorbs any adverse “tail” experience.
  • Structured the beneficial ownership of the captive to create a preferred return of captive underwriting profits as a way to incentivize risk management and enhance investor value.
Contact us today for consultation

Keystone Risk