BeneCap, offered by Marsh McLennan Agency (MMA), is a voluntary benefits captive solution designed to support an employer's captive growth. It works by integrating 100% employee-paid lines of coverage with the current risk management strategy. The goal is to improve loss ratios, which may help provide additional benefits to employees and potentially fund more employee benefits.
The lines of business that can be reinsured by the employer’s captive include accident, critical illness, hospital indemnity, and legal insurance. These products are governed by the Employee Retirement Income Security Act of 1974 (ERISA), and any surplus program funds received by the employer must be used to provide benefits to employees. Identity theft insurance can also be reinsured; however, ERISA does not govern identity theft, and there are fewer restrictions on how surplus program funds can be used.
Because of low limits, the average claim severity tends to be low. There is no risk of catastrophic exposure. According to carrier data, the average critical illness claim is approximately $15,000, with a maximum possible claim ranging from $30,000 to $50,000, depending on the plan design. The average accident claim is about $1,800. The maximum possible claim is typically $10,000 and would involve a severe injury, such as burns or death and dismemberment. However, death and dismemberment are often excluded from the plan design. Typical claims usually don’t exceed $1,200 to $1,800. An average hospital indemnity claim is around $1,600. The maximum possible claim is approximately $12,000, depending on the plan design but such a high claim would involve a lengthy hospitalization.
Based on available market and carrier data, claims frequency tends to be generally predictable. Industry benchmarks suggest that about one in 100 enrollees may have a critical illness claim, 55 in 1,000 enrollees may have an accident claim, and 50 in 1,000 enrollees may have a hospital indemnity claim.
To qualify for BeneCap, an employer must have at least 2,500 benefits-eligible employees and offer all three supplemental health lines: accident, critical illness, and hospital indemnity. The employer must own their own captive insurance company but can work with any captive management firm.
If the employer does not have their own captive, other options are available. These include using a cell captive solution, which is a cost-effective risk financing vehicle where assets and liabilities are separated into “cells” within a sponsored cell captive and are used similarly to a single parent captive.
BeneCap may be a cost-effective option for our clients because it aims to help reduce risk and offer diversification, cash flow benefits, and potential underwriting profit for their captives. BeneCap also supports improved data management. We provide quarterly reporting, increased transparency around claims and fees, and data warehousing with real-time financial data updated quarterly.
BeneCap allows more control over plan pricing. HR can customize plans to align with core medical plans, and risk is managed centrally. Employees may be more satisfied when voluntary benefits programs offer competitive rates and enhanced coverage. The financial results cam support additional benefits for employees.
The following flowchart explains how the process works and highlights the differences between the current process and what changes with a captive program. From an HR perspective, everything in the gray box already happens today and will stay the same. Employees enroll using technology, whether it’s the employer’s system or the carrier’s. The elections are sent to the carrier, and the deductions are sent to the employer’s payroll system. Deductions are taken when payroll is processed and then remitted to the carrier. The carrier continues to adjudicate claims and process claim payments to the insured members.
The first step in determining the appropriate funding strategy is to conduct a 360° Diagnostic Assessment of your current benefit plans, technologies, and communications. Our thorough analysis combined with our experience in the benefits industry, helps us identify opportunities to enhance current programs, streamline administration, reduce costs, and improve the employee experience to optimize these programs.
Whether you already offer voluntary benefits or are exploring them for the first time, we start by understanding your current situation and needs, including a look at your employee demographics. Next, we review your benefit plans and compare them to industry benchmarks to see how they stack up. We also take a close look at your vendors to find the best fit for your goals.
We’ll walk you through different funding options, including the captive solution, so you can see what might work best. Together, we'll review employee experience and engagement, technology and enrollment processes, and other areas like claims integration. Finally, we’ll bring everything together to help optimize your program and provide you with a clear report outlining our findings.
To learn more about how to make the most of your voluntary benefits, feel free to contact us at captives@MarshMMA.com.
Voluntary Benefits Practice Leader
Senior Financial Leader
