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Consortium vs. Captive: What’s the best path for your clients

Wondering whether a captive or consortium insurance model is a better fit for your clients? We're going to break that down and help you decide which one suits their needs best.

July 2, 2024

Wondering whether a captive or consortium insurance model is a better fit for your clients? We’re going to break that down and help you decide which one suits their needs best.

As a health insurance broker, staying ahead of rising healthcare costs is critical. With premiums for workplace health plans expected to increase over 8% in 2024, finding the best solutions for your clients is more urgent than ever.

This resource will help you understand the differences between consortium and captive models, guiding you to make informed decisions that benefit your clients.

Understanding Captives

A captive is an insurance company created and owned by one or more non-insurance companies to insure the risks of its owner(s).

Captives allow employers to share risks and potentially benefit from underwriting profits. Here’s what you need to know:

Risk Sharing: Captives allow employers to share risk, which leads to more stable premiums over time.

Collateral Requirements: While joining a captive often requires posting collateral, this financial commitment provides a level of control over your insurance program.

Profit Sharing:While there is potential for profit sharing, be certain to understand the goal of the profit sharing piece of the employer captive. The reality is that many captives are often designed to break even. This raises the question of why employers should assume the additional risk for potential cash flow.

What is a Consortium?

A consortium is a group of employers who come together to purchase stop-loss insurance collectively.

By pooling their resources, they leverage collective purchasing power to reduce volatility and optimize protection. Here’s what you need to know:

Non Ownership: In contrast to captive arrangements, consortium members don’t hold ownership in the group. Instead, each member retains independent control over their company’s benefit plan.

No Collateral: Joining the consortium doesn’t require any upfront financial contributions from you.

Shared Risk: By combining their insurance risks, employers achieve greater stability and predictability in healthcare costs.

Cost Containment: Members of a consortium typically implement cost-containment measures and best practices to manage and reduce healthcare expenses effectively. This collaborative effort leads to more efficient use of resources and better control over high-dollar claims.

Shared Resources: A consortium often involves shared administrative resources, such as third-party administrators (TPAs) and pharmacy benefit managers (PBMs), which help optimize the management of claims and other administrative tasks.

A consortium allows employers to pool resources, reduce cost volatility, and share administrative resources for better efficiency

Which model is right for your clients?

Choosing between a consortium and a captive depends on your client’s goals and risk tolerance, both models are suitable for everyone. Here are some considerations:

Financial Commitment: If your clients are looking for a solution with lower upfront financial commitment and no collateral requirements, a consortium is ideal. It protects both the employer and broker from friction with clients.

Stability and Predictability: For clients who value stability and predictable costs, the policy features and private pool nature of a consortium model are a better fit. Posting collateral or dealing with cash calls can put brokers at risk of losing clients, so the Consortium model can be a more stable option.

Risk Tolerance: If your clients have higher risk tolerance and are willing to invest additional money into an employer captive with the hope of capturing a return on investment, an employer captive might be suitable. However, due diligence is crucial as most employer captives are designed to break even.

Opt for a captive if your client has higher risk tolerance and seeks potential investment returns. Choose a consortium for lower financial commitment and stability.

Public vs. Private Pools

Public Pools: Open to almost anyone, potentially leading to higher abuse and less stringent cost-containment measures.

Private Pools: Strict cost-containment requirements and selective entry ensure better alignment and protection.

Read More: Public vs. Private Pools: Are Employers Choosing the Wrong Consortiums and Captives?

Why Virtue Health?

Virtue Health is designed by an advisers for advisers, offering a long-term insurance solution for employers in the small to mid-size market (50-500 employees). Here’s why Virtue Health stands out:

Cost Containment Requirements: Virtue Health requires cost containment measures that public pools do not, ensuring a higher level of financial control with lower renewals year over year

Public vs. Private Pools: Private pools like Virtue Health offer more tailored solutions and stricter financial management compared to public pools.

Track Record: Virtue Health boasts stellar loss ratios and has never had a year with financial losses, ensuring stable and low-cost renewals.

Policy Features: We provide all the benefits of a group purchasing program without the financial risks thanks to features like no new lasers, rate caps, banded renewals, and flexible entry or renewal times.

Sustainability: Ensures stable, low-cost renewals in good years and protection in bad years, offering sustainability year over year for your groups.

Virtue Health provides a stable, cost-effective insurance solution with robust financial control and sustainable policy features for small to mid-size employers.

Next Steps for your Health Insurance Strategy?

Understanding the differences between Consortiums and Captives is essential for making the best decision for your clients.

As you navigate both models, consider the unique needs and risk tolerance of your clients to guide them toward the best path for their health insurance needs.

For more information on how Virtue Health can help you provide the best solutions for your clients schedule a call: