The Cayman Islands is the world’s largest domicile for healthcare captives, and also hosts the largest annual captive insurance conference, says JS de Jager.
A woman walks into a doctor’s office and says “I am looking for a new doctor for me and my family. What can you tell me about yourself?” The elderly man extends a warm hand of welcome and invites her to sit down and discuss her needs. His bedside manner is impeccable and he is obviously well versed in his field. But how up to date is he, she wonders?
Still shopping around, she goes to a second office and asks the same question. This doctor is a young woman who has just set up her practice. It is contemporary and has all of the latest technological equipment. She is up to date on all the most modern medicine and theories, but she is quite green. She doesn’t have so much experience dealing with real-life issues.
The third office the woman visits is welcoming and bright. There an element of bustling activity that is evidence of a thriving business. It is modern and yet familiar. There are two doctors at this practice. One has more than 30 years of experience in medicine. She has treated thousands of patients over these years and she knows these people and their families. She has delivered their babies and has made the sick well.
With her is a young doctor who has recently finished his residency. He is full of ideas and ambition and he is a whiz at all the latest treatments. Together, they provide the best of both worlds—extensive practical experience, understanding of the importance of relationships, an innovative and modern approach to medicine and all the latest news in the world of medicine.
Taking this analogy and applying it liberally to the issue of selecting a captive domicile for a healthcare captive, the Cayman Islands is the third doctor’s office.
The place to be
The Cayman Islands is the world’s largest domicile for healthcare captives.
Cayman’s history in healthcare captives goes back almost as far as modern history of captive insurance generally, which began in the early 1970s with captives establishing themselves as regular companies.
When Harvard Medical School chose the Cayman Islands as the domicile for its captive, CRICO, in 1976, Cayman was immediately recognised as a highly credible jurisdiction. Other healthcare companies and facilities soon followed Harvard’s lead, particularly in the area of covering medical malpractice for external doctors.
Success breeds success and by 1979, Cayman legislators and regulators realised that the alternative risk management industry was growing and likely to be around for a while and as a result, specific captive insurance legislation and regulations were established and implemented.
Today, Cayman is home to 764 captive insurance companies, not including the many segregated portfolios under each core segregated portfolio company structure, with premiums of $12.3 billion and assets of $54.9 billion, which makes it the second largest captive domicile in the world, a position it has held consistently for decades.
Of these captives, 33.64 per cent are healthcare captives, which puts Cayman in the spotlight as having expertise in this sector and a particular niche in medical malpractice. The regulator, the Cayman Islands Monetary Authority (CIMA), legislators, the Cayman-based managers and service providers have an in-depth understanding of the needs of the healthcare industry and continue to provide assurance that these needs are consistently met.
It has consistently worked to ensure that the infrastructure would be the building blocks of innovation and yet would be based on the foundation of experience. The latest modernisation of the legislative and regulatory framework is at the present time in the final stages of being drafted for implementation, with several changes, including the ability for insurance-sector segregated portfolio companies to incorporate their cells now becoming a possibility.
The incorporated cell is established as a Cayman exempted company called a portfolio insurance company (PIC). This structure provides more certainty as to the US tax status of the offshore insurance company cell, facilitates contracting issues between cells, and allows for greater flexibility in the appointment of governance boards.
CIMA played a distinct role in Cayman’s success. It has been selective about the business it takes on and has been proactive on the issue of transparency and compliance with international regulatory initiatives, including the Organisation for Economic Co-operation and Development, the International Monetary Fund and the Financial Action Task Force.
Although Cayman cannot directly impact global regulatory initiatives, it can and has participated in the development of these initiatives, including membership in the Caribbean Financial Action Task Force (which it also chaired), the International Organization of Securities Commissions and the Offshore Group of Insurance Supervisors, working to balance global best practices as well as maintaining a responsible regulatory framework that does not put unnecessary burden on the captives. This last point is very important—CIMA uses a risk-based model that does not hinder the progress of the minority for the over-protection of the few.
CIMA has also been able to effectively identify and properly intervene on troubled companies, which has been crucial to the jurisdiction’s success. The reporting duties on auditors detailed in the new law is a good example of this as it underscores its attempt to identify potentially troubled companies sooner.
In short, Cayman has stuck to the basics: sound, risk-based regulation, an open-for-business attitude and the offering of some of the world’s brightest and most capable insurance managers, actuaries, lawyers, auditors and bankers.
The expectation of consolidation of health systems and hospitals as a result of the Patient Protection and Affordable Care Act (PPACA) in the US is coming to fruition. Doctors are evolving from independent practices to become hospital employees, which is an extension of healthcare to population management. Although this has meant fewer captives, it also means larger, more complex structures. These types of captives are not compelled to look at re-domiciling—they are in Cayman to stay because they trust the integrity of the regulatory structure and the lengthy but niche experience of the service providers.
In the future, captives will need to meet the challenge of helping their parent companies become more efficient. Cayman’s role in a healthcare captive is now about more than just risk management and financing strategy and company enterprise risk management, with a goal of maintaining revenue streams that would have typically gone to a commercial underwriter.
This new requirement will create the need for innovation beyond the traditional malpractice, general liability and workers’ compensation lines of business. Cayman is already starting to see this type of innovation in the Canadian market where those traditional uses for captives are not as relevant.
For example, Canada has universal healthcare and workers’ compensation programmes, but captives are becoming increasingly important in insuring things such as privacy breach issues that can be addressed by creative risk financing, stop-loss coverage for self-insured health plans, especially through group captives aggregating exposures of numerous small to medium sized companies, and diversification of a company’s business operation.
Terrorism threats, environmental pollution, warranty risk, and premium healthcare coverage are all new lines of business that are being written.
The captive conference
Cayman illustrates its dominance in the sector by hosting the world’s largest captive insurance conference each year. For 17 years, the Cayman Captive Forum has been the place where the many professionals who eat, sleep and breathe captive insurance congregate to discuss the issues in dedicated healthcare tracks.
It is an excellent place to learn about everything you need to know, from business planning, to regulation and typical issues faced by a captive. But don’t take our word for it, register now at www.imac.ky/ccf-home
We hope to see you there, from December 2 to 4, 2014. n
JS de Jager is senior vice president, CSI International and chair of the Insurance Managers Association of Cayman’s (IMAC) marketing committee. He can be reached at email@example.com.
Cayman Islands, JS de Jager, Harvard Medical School, CRICO