At edHEALTH, we are fortunate to work with the best of the best business partners. From time to time we highlight their roles and the value they bring to our consortium. This month, we feature David White, CPA, ACI, and Vice President - US Captive Operations at AIG. Thank you, David, for all you and your team do to support our member-owner schools.
What is your role with the edHEALTH program as the Captive Manager?
My team and I have three main roles, which are to:
- Prepare the financial statements of the edHEALTH entities
- Facilitate the movement of funds or treasury management
- Help maintain regulatory compliance for the captive insurance company
The AIG team, therefore, works closely with the edHEALTH staff, governing bodies, members, regulators, and service providers. We also work with other captive insurance clients and can bring those experiences to benefit the edHEALTH program.
What is of interest to edHEALTH members about these areas?
Financial Reporting
I am happy to report that the edHEALTH team continues to operate the program at very efficient expense levels. With insurance, the expense ratio is the expenses as a percent of net premiums earned. The edHEALTH captive program has an efficient expense ratio of 10%, which is down from the 15% range five years ago, thanks in part to growth in membership. This ratio compares favorably to benchmarks available such as aggregated data from the Vermont Department of Financial Regulation. Across all Vermont captives, the average expense ratio was 24% in 2021.
If we look at non-captives, the National Association of Insurance Companies reports that administrative expenses averaged 12% over the past five years, plus a 3% profit margin for the traditional health insurance industry. Therefore, the edHEALTH captive expense ratio of just 10% compares favorably to the traditional health insurance marketplace that spends over 15% on non-claim related costs.
Treasury Management
When it comes to the movement of funds, it is our role to invoice each school their monthly amount due and make sure the amount collected is moved to the appropriate accounts. Something of interest for members to know is that we have taken care to implement positive pay controls with all the bank accounts involved in the process. We consider this a best practice to safeguard each account from unauthorized withdrawals. If this protection were not in place, then bank accounts could experience unauthorized withdrawals where owners may only have one business day to recognize and challenge the transaction with their banking institution. With positive pay, no ACH withdrawals are allowed unless we actively pre-authorize the transaction.
Regulatory Compliance
AIG helps its clients, including edHEALTH, to manage compliance audits from the Vermont Department of Financial Regulation. These audits are performed on every captive insurance company in Vermont every five years. We field questions from the examiners and provide requested documentation.
edHEALTH recently completed its examination, which included fielding questions from the examiners and providing the requested documentation. The edHEALTH Captive is fully compliant, in good standing, and received a clean report. This is in no small part thanks to the day-to-day work of Abigail Donze and Joe Percy on our AIG team in Vermont. It is also thanks to proactive, thoughtful service from our Vermont captive counsel, Jesse Crary of Primmer Piper Eggleston & Cramer PC, and collaborative consulting from Spring Consulting Group.
What new things are you seeing in the captive industry?
I worked closely with a client over the last year to help a group captive form a new sponsored captive and its first cell. This type of captive provides a core entity that holds the regulatory capital and manages the operations of various captive insurance cell programs. A cell is basically its own captive insurance entity, with its own insurance coverages, and its own segregated assets and liabilities. By belonging to a sponsored captive, the cell program can be operated more efficiently with a common management team and common service providers to achieve economies of scale.
Any final thoughts?
I just want to share my favorite thing about captives because it is why I have stayed working in this industry for over 20 years. That is the strategic alignment of having the captive owners see and care about the impact of claims activity. When CFOs and the executive team understand the importance of wellness and other initiatives to keep claim levels low, it benefits their bottom line but also helps keep employees healthy and safe. I am fortunate to spend most of my time with non-profit clients using captive programs, which allows them to use the savings to serve their missions better.
