Corporate risk managers address captives insurance conference

Starting an insurance captive can help a company control losses, save money and get broader coverage, speakers suggested Wednesday at the 11th annual Captives and Insurance Strategies Summit.

Teck Resources Ltd. has had a captive program for about 10 years, suggested Anne Chalmers, vice president of risk and chair of the materials and stewardship committee at Vancouver-based Teck.

A captive is a “legal entity formed primarily to insure the risks of a corporate parent or a number of similar corporations” such as trade associations, notes commercial insurance brokerage Marsh Canada.

“Generally speaking the world of the future is to look and see what business value the captive can add in terms of adding to your risk and loss control activities, supporting your other business activities,” Chalmers said Wednesday at the Captives and Insurance Strategies Summit.

Teck’s operations include the mining and processing of steelmaking coal, as well as copper and zinc, among others. It reported revenues of $8.6 billion in 2014.

Prior to 2005, Chalmers suggested, Teck bought insurance for risks that “were very difficult to get insurance for at a very competitive price and also with the scope of coverage that we needed in mining – in particular lead – and sudden and accidental pollution, for example.”

With sudden and accidental pollution coverage, she suggested, one issue was with “the availability of the broad wording” that a mining and smelting company would require.

So Teck formed a captive in 2005. With the financial crisis of 2008-09, Teck took on more risks through its captive, Chalmers suggested.

The Captives & Corporate Insurance Strategies Summit – which continues Thursday – was held at the Sheraton Centre in Toronto and organized by the Strategy Institute.

Another speaker was Elizabeth Marinescu, corporate contracts and risk manager for Supreme Group LP, an Edmonton-based steel fabricator and construction company.

Marinescu suggested to audience members that around 2003, premiums started rising and Supreme Group started to purchase insurance with higher deductibles. The company started to put aside reserves but they were not tax deductible, she added.

A captive “made perfect sense” to John Leder, Supreme Group’s president and CEO, because it would solve three problems, Marinescu suggested.

“John thought there must be another way to deal with risk and save money at the same time and it turned out that a captive was the answer to this,” Marinescu said.

A captive can create a reserve, help save money and provide Supreme Group with better in-house risk management, she added.

In 2007, she said, Supreme Group formed a licensed captive insurer providing professional liability, builders’ risk, contractors’ equipment and $1 million in general liability.

Supreme Group buys insurance for general liability above $1 million but the cost for the excess layers “is considerably lower than the cost for the first million,” she said.