Walgreen’s Captive Insurance Companies Support Its Brand Strategy

This is our second letter about the Captive Live Conference in Chicago, Illinois.  CIC Services, LLC recently attended the conference as part of our on-going efforts to stay abreast of shifting trends, strategies and regulations in the captive insurance industry.  At this conference, we had the pleasure of listening to Patrick Raftery, Chief of Risk Management at Walgreens.

Patrick’s presentation was unique because he specifically tied Walgreens captive insurance strategy to the company’s branding and differentiation strategy versus other food, drug and mass stores.  Walgreens positioning is “On the Corner of Healthy and Happy.”   They are transitioning from a retail pharmacy to a health and wellness provider.  Some initiatives that support this differentiation strategy include:

1. Operating walk-in clinics
2. Giving immunizations (Walgreens is ranked 2^nd in the U.S. behind the federal government for vaccinations)
3. Bringing fresh food to urban areas (not just packaged goods)
4. Adding multiple lifestyle web domains (Walgreens.com, Beauty.com, Drug Store.com)

Walgreens is an approximately $100 billion company with over 8,000 store and over 307,000 employees.  Their transition from retail pharmacy to health and wellness provider brings many new risks to the enterprise.  It is not surprising that their legal department has over 100 lawyers.

Risk management strategies discussed included:

1. Shifting as much risk to suppliers through contract negotiations as possible
2. Conducting training and safety programs (at distribution centers and stores)
3. Leveraging their captive insurance companies
4. Utilizing third party insurance

Patrick noted that it took Walgreen’s five years to align all internal departments and clear the way to set up a captive insurance company in Vermont in 2011.  “There were a number of disciplines involved including Tax, Risk Management, Treasury and HR…and consensus building is important in a large corporation.”   Risks insured by Walgreen’s captive included Worker’s Comp, General Liability and Auto Liability.  Their captive primarily buys down third party insurance cost by covering larger deductibles.

Patrick noted that the captive has already “brought down the cost of risk.”  He noted that the economic benefits were obvious.  Walgreens ran numerous models to assess the potential impact of initiating a captive insurance company program.  “Everyone knew we would benefit financially – but how do we get there?”   According to Patrick, the current company wide consensus after standing up their captive insurance strategy is “why didn’t we do this before?”

Walgreens also acquired their clinics within a different captive insurance company.  This captive insurance company also sells insurance to the MDs that practice in Walgreen’s clinics.  This is another way that Walgreens is leveraging its captive insurance program to support its brand / differentiation strategy.  In the future, they plan to add employee benefits into their captive insurance companies as well.

Lessons & Perspective

What are some lessons that can be drawn from the presentation by Patrick Raftery of Walgreens?

1. Transitioning your company or brand can result in additional and/or different risks.
2. Implementing a captive insurance strategy can yield many financial benefits and captives can be utilized to address a broad range of risks
3. Modeling can demonstrate whether or not a captive insurance company can yield financial benefits for your business.
4. It took Walgreen’s five years to align departments and seize a meaningful prize.  Many small businesses can seize the same meaningful prize in 3 months to 4 months.

Stanley Black & Decker Establishes Connecticut’s Second Captive Insurance Company

(HARTFORD, CT) – Governor Dannel P. Malloy today announced that Stanley Black & Decker is moving its captive insurance subsidiary, SBD Insurance, Inc., from Vermont to Connecticut, establishing the state’s second captive insurer.  “The iconic Stanley brand is part of the proud tradition of Connecticut manufacturing,” said Governor Malloy. “Establishing its specialty insurance division in the state is a most welcome homecoming and signals that our work to establish the optimal environment to grow the emerging captive industry is attracting business.   To read the entire article, click the following link:  http://www.governor.ct.gov/malloy/cwp/view.asp?Q=510904&A=4010

Sincerely,

Tom King

Phone – 865- 386-4920

E-Mail – Tom@CICServicesLLC.com

Web –  www.CICServicesLLC.com