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Helping make compliance easy

May 26, 2016

Zurich’s sponsored cell captive provides a new loss-sensitive alternative.

Head of Specialty Products

Brian Winters is the Head of Specialty Products for Zurich North America. Under his leadership, this... About this expert

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As businesses increasingly seek to take advantage of opportunities in global markets, adherence to local regulations is essential. In an effort to provide international casualty customers with a loss-sensitive solution that is more transparent and administratively seamless, Zurich has developed a new sponsored cell captive program. Brian Winters, Head of Customer, Distribution & Market Development for Zurich Global Corporate in North America, and Andrew Smith, Zurich’s Regional Manager for International Casualty and national business lead for the program, discussed some of the benefits of Zurich’s sponsored cell captive and how it combines the consistency of a guaranteed cost program with the flexibility of a loss-sensitive solution, all while aiming to conform with international regulations.

What inspired Zurich to develop a sponsored cell captive program?

Winters: At Zurich, we have a tremendous global footprint that provides us with the capability to service customers in many countries around the world. As we looked across our risk-sharing solutions landscape we found that we already had a number of products in our portfolio—locally managed deductibles, retrospective programs, self-insured retentions, single-parent captives—but what was lacking was a centrally managed loss-sensitive insurance program. And, we wanted to offer a sustainable, proven solution that could be adapted efficiently to a rapidly changing regulatory environment. So, we added a sponsored cell captive to our risk-sharing solutions to give our customers multiple line risk-sharing solutions and greater flexibility in their insurance program.

What are some of the benefits of the program?

Winters: Essentially, the participant gets the advantage of not having to start up their own captive from scratch, which can be costly. Zurich assumes the administrative burden and capital requirements and provides our customers with a unique cell that is statutorily isolated from the loss experience of any other customer; you can have a customer with adverse loss experience in one cell that will have no impact on our other customers. This can give customers an easy-access, sophisticated loss-sensitive program, and, with regulations around the world becoming more and more complex, one that is more aligned with the legal and regulatory view.

Smith: The new sponsored cell captive allows Zurich to issue guaranteed cost policies locally that are managed from the United States on a loss-sensitive basis. The premium is paid overseas on these guaranteed cost policies. When it comes back to the United States, it is directed to the sponsored cell and held in Zurich’s eZ Trust® product. This premium can serve the dual purpose of not only satisfying collateral requirements, but also acting as a fund to pay losses that occur overseas or domestically.

Winters: Because of the captive component, our solution aims to achieve a higher level of regulatory review and gives us a greater ability to assure the customer that they have the right program in place. Before we developed this program, we spent a year considering every possible type of product, and this has some of the best features and components of all the programs that we looked at. For our customers, it’s easy to implement and has a fast flow around documentation. For example, customers who buy loss-sensitive programs often have to secure those programs with letters of credit. That could be a difficult situation for a customer who has consistently been buying guaranteed cost. So, now the risk manager has to go to their finance department and request a letter of credit, which is something most risk managers hope to avoid. With our product, the premium paid by the customer is held in a depleting trust—our eZ Trust® product—and a separate letter of credit is unnecessary. The risk manager maintains control.

How can risk managers best convince upper management that a sponsored cell captive is the right choice for their company?

Winters: The opportunity for the risk manager to go to their senior management or board and talk about this product revolves around consistency of data, potential cost savings, compliance and ease of doing business. International casualty is more complicated than some other lines of business. Zurich Insurance Group does business in over 200 countries and territories, so imagine a customer who has 50, 60, 80 locations around the globe, trying to align everything with local regulations. Zurich has spent considerable time and money building one of the most trusted multinational insurance applications in the industry. We work with law firms, accounting firms and consultants to ensure that we have the most up-to-date information on all the jurisdictions where we operate. Several factors can bring compliance into question, and countries are becoming more diligent regarding local insurance activities, policy language and adequate tax payments. Ultimately, a company’s ability to successfully operate can be impaired.

Smith: By allowing local policies to be issued and invoiced on a guaranteed cost basis as part of an overall loss-sensitive structure, our solution helps ensure that in the local jurisdiction, the paid premium and taxes are commensurate with the exposure. By issuing guaranteed cost policies overseas, customers also get consistency in terms and conditions and other data collected around the world.

Winters: Customers want to invest in their own operations and their own success. With a guaranteed cost program, there is a winner and a loser. A loss-sensitive option lets them take advantage of their improving loss picture. Our program helps them invest the extra cash flow in their operations and take advantage of the safety, claims and risk management practices they already have in place.

Originally published in the April, 2016 issue of Risk Management.

This is intended as a general description of certain types of insurance and services available to qualified customers through the companies of Zurich in North America, provided solely for informational purposes. Nothing herein should be construed as a solicitation, offer, advice, recommendation, or any other service with regard to any type of insurance product underwritten by individual member companies of Zurich in North America, including Zurich American Insurance Company. Your policy is the contract that specifically and fully describes your coverage, terms and conditions. The description of the policy provisions gives a broad overview of coverages and does not revise or amend the policy.

Coverages and rates are subject to individual insured meeting our underwriting qualifications and product availability in applicable states. Zurich does not guarantee a particular outcome, reduction in costs, or improvement in collateral administration and further assumes no liability in connection with the providing of these products.

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