Frequently Asked Questions
Why a group approach to this problem?
Most human service providers are too small to effectively increase their own risk retention and reduce their reliance on commercial insurance. Faced with a similar set of circumstances, other industries such as Healthcare, Municipalities, Higher Education, Manufacturers, and Transportation often replace commercial insurance with so-called alternative risk programs such as captives (see below). But such vehicles, while efficient, require a certain size and investment. So, what can the human service provider market do? It can band together and form a group solution. One platform for sharing risk among superior human service risks is a protected cell company (see below) approach.
What is a captive?
A captive insurance company, or "captive" for short, is a bona fide, licensed and regulated insurance company which provides insurance primarily for the benefit of its owners.
What is a "Protected Cell Company"?
A "Protected Cell Company" or "Segregated Accounts Company" is a variation on the captive theme in which the capitalization, management and ownership of the captive resides with the sponsor (in this case Citadel International Reinsurance Company Limited). Others (in this case TCA) participate in individual "cells" within the captive. Each cell is separate and insulated from the experience of the other cells. This provides the "cell" participant with the benefits of a captive without having to form and capitalize its own captive.
What has TCA done to assure quality service and acceptable evidence of insurance?
TCA and USI negotiated an arrangement with Philadelphia Insurance Company, the predominant market participant for the human service provider sector, to provide underwriting, reinsurance, claims handling and loss prevention services to TCA and its Members.
What coverages are provided under the TCA program?
The coverage provided is commercial general liability, professional liability, automobile liability and sexual misconduct liability.
What are the characteristics of this type of captive or an alternative risk treatment?
While there are many types of captive structures, including segregated account companies and protected cell companies, captives share several characteristics. They are closely held, primarily underwrite the risks of their owners, and financially benefit their owners. Another way of looking at such captives is as alternative approaches involving formalized or disciplined self-insurance. Group vehicles, such as TCA, usually have some risk or cost sharing.
What type of alternative approach is TCA?
TCA is a limited liability company which participates in a cell in the Citadel International Reinsurance Company Limited (Bermuda) Segregated Accounts Company.
How can I be sure other members are "good" risks?
The answer lies in the membership and underwriting processes. First, there are minimum eligibility standards to assure that members have the financial strength to participate. Then there are two rigorous screens applied. The TCA Board of Managers reviews all applications and approves membership. Simultaneously, Philadelphia Insurance underwrites the exposures, accepts or rejects applicants, and prices them properly for the risk a prospective member brings to the group. Finally, TCA provides consistent and targeted loss prevention and claims management to all members to keep their risks under control.
Organizational and Liability Issues
The Captive Advantage, LLC is a limited liability company. What is a limited liability company?
A limited liability company ("LLC") is a form of legal entity authorized by statute in a particular state. An LLC is a hybrid entity, in that liability of the company is limited to the assets of the company, as with a corporation, but the company may be treated as a partnership for tax purposes.
The Captive Advantage, LLC is an LLC organized in Delaware. It is treated as a partnership for tax purposes.
What does it mean to be a member of an LLC?
A member of an LLC is a part-owner of the LLC (just as a shareholder of a corporation is a part-owner of the corporation) and as such holds economic interests in, and voting rights with respect to, the LLC.
Where are the rights and obligations of the members of Captive Advantage spelled out?
In the Operating Agreement of The Captive Advantage, LLC. The Operating Agreement in turn incorporates a document entitled "The Captive Advantage, LLC Standards and Formulas" (the "Standards and Formulas"). The Standards and Formulas are a key document, because they spell out a member's economic rights and obligations.
Who are the members of Captive Advantage?
The Center for Human Development (CHD), Servicenet Inc., Wayside Youth & Family Support Network, Y.O.U. Inc., Southeast Regional Network, North American Family Institute, The Key Program, Bay Cove Human Services, Spectrum Health Systems, Community Care Network, Spurwink Services, Justice Resources Institute, Rutland Mental Health Services.
How is a new member admitted?
By vote of a majority of the members.
What actions require the vote of members?
- Amendment of the Operating Agreement.
- Election or removal of Managers (Managers are, in effect, the directors of Captive Advantage (see below)).
- Amendment of the Standards and Formulas.
- Admission or expulsion of a member.
- Approval of transfer of a membership interest.
What role does the Board of Managers play?
The Managers act as the board of directors of Captive Advantage. They govern the affairs of Captive Advantage, subject to the rights of the members. They appoint Agents of Captive Advantage – a President, a Chief Executive Officer, a Vice President, a Treasurer and a Secretary. Four powers, in particular, are important:
- Amendments to the Standards and Formulas require the recommendation of the Board of Managers, as well as a vote of the Managers.
- The Board approves the amount of assets or other security that must be posted by members as security to cover claims. Requirements on this subject also come from the Philadelphia Insurance Company.
- The Managers approve assessments to the members subject to the requirements of the Standards and Formulas. If the member's loss experience for the year in question exceeds the amount of the loss fund, the member will be assessed that excess. Members also approve dividend distributions to members from those amounts that are available in the loss fund when they become available. These arrangements are spelled out in the Standards and Formulas.
- The members approve operating expenses of Captive Advantage.
May a member resign or be expelled?
A member may resign upon 90 days' notice. A member will be disassociated from Captive Advantage if it is expelled or it ceases to buy insurance through the program. A member may be expelled for cause; namely, substantial breach of the Operating Agreement and failure to cure after notice or any action that causes substantial harm to Captive Advantage.
What duties do Managers and Agents have to Captive Advantage?
The duties are generally the same as with directors and officers of a corporation – to act (a) in good faith, (b) with the care of an ordinarily prudent person and (c) in what the individual reasonably believes to be the best interest of the organization.
Do members, Managers or Agents have confidentiality obligations?
Yes. The terms of the Operating Agreement are to be kept confidential, as is certain other information. Presumably, the latter includes details as to the economics of Captive Advantage, to the extent that there is value to Captive Advantage in not having those details known.