Association Captives Can Curb Insurance Costs

It’s been said that “necessity is the mother of invention.”  This was certainly the case when a group of physicians banded together to form State Volunteer Mutual Insurance Company (SVMIC) in the mid-1970s.  SVMIC’s model and success story can be replicated by associations choosing to form an association captive insurance company.  Association captives can provide an insurance vehicle members to help gain greater control over risk management and costs.      

CIC Services, LLC recently attended the Tennessee Captive Insurance Association’s annual conference in Nashville, TN on November 20 and 21.  CIC Services regularly attends captive conferences as part of our ongoing effort to stay abreast of trends, regulations and legislation in the industry.  One of the panel sessions was titled “The Mature Captive: Continuing to Add Value Over Time.”  This session included a presentation by John Mize, President & CEO of State Volunteer Mutual Insurance Company.

State Volunteer Mutual Insurance Company (SVMIC) is a mutual insurance company that clearly demonstrates the potential benefits that professionals or member companies could enjoy by forming an association captive.  A captive insurance company is a licensed insurance company that provides insurance coverage to a parent company or related companies.  Associations of professionals or companies can own a captive insurance company to insure association members and their businesses.    

SVMIC was founded in the mid-1970s during a crisis in which many commercial insurers ceased to offer medical professional liability coverage.  It was formed by physicians who banded together to share insurance risk and advance their profession.  In 1976, SVMIC was licensed by the state of Tennessee and wrote its first policy.  By 1977, SVMIC insured almost 4,000 Tennessee physicians.   

Because SVMIC is a mutual insurance company, it is able to provide professional liability insurance at net cost.  Also, since SVMIC is physician owned (owned by association members), SVMIC is able to essentially ignore the “soft” and “hard” ups and downs of the commercial property & casualty insurance market.  As SVMIC became more profitable, it was able to lower or stabilize insurance costs for members to a greater extent and even paid dividends to members.  Starting in 1989, SVMIC began expanding to serve physicians in other states.  Today, SVMIC insures over 14,000 physicians throughout the Southeast.

SVMIC’s model provides additional insights for potential association captive insurance companies.  SVMIC shares best practices and risk management practices with particular focus on root cause analysis.  This enables all members to reduce the likelihood of claims, which has the long term positive impact of helping to keep insurance costs low for all association members.  SVMIC even provides courses and seminars to train physicians and their staffs.

Business owners and associations need not wait for necessity to force them to birth a captive insurance company.  Professionals, business owners and established associations can choose to set-up and own an association captive to provide insurance coverage to members.  This approach can be particularly effective when association members have a good claims track record.  Good claims years can enable the association captive to accumulate reserves, which – in turn – can help lower future insurance costs to association members.  Successful association captives can also pay dividends to the association and its members.    

Since 2005, CIC Services, LLC has been helping business owners own their own insurance company.  Please contact us with any questions about association captives.