When Harvard Medical School set up the first health care captive company to control escalating malpractice costs some 30 years ago, it became a business model for hospitals across the United States to follow, said Gordon Rowell, the head of the insurance division at the Cayman Islands Monetary Authority, at a recent lecture at the International College of the Cayman Islands.
Harvard Medical School’s decision would also put the Cayman Islands on the map within the captive insurance industry.
Today, health care providers include hospitals, physician groups, nursing homes and medical equipment manufacturers, which make up some 35 per cent of the 720 captives set up in the Cayman Islands, Mr. Rowell said.
”The results were that physician medical malpractice and hospital professional liability insurance could now be offered at reasonable terms,” Mr. Rowell told students during the lecture. “Over the years, the consultants behind captive formations grew comfortable in doing business in Cayman due to the expertise in this niche field and continued to refer new formations to Cayman.”
Generally, captive insurance is a form of self-insurance, which is set up to underwrite and pay claims for the parent company or organisation. Companies often create captives to reduce insurance premium costs and to manage their own risks.
The US health care reform legislation, passed in March 2010, will likely increase demand for Cayman health care captives, said Mr Rowell, as it will put greater emphasis on incentives for preventative treatment and offers incentives for sharing in cost reductions through the formation of accountable care organisations.
“This will likely increase the demand for hospitals to hire more internal medicine professionals, endocrinologists, dieticians, anesthesiologists. This will, in turn, lead to a movement from private physician practices to hospitals employing more physicians and the need for additional insurance to be provided by captives,” he said.
International College Dean Scott Cummings said having the insurance regulator give a guest lecture on captive insurance was a great opportunity for students.
“Mr. Rowell gave an insightful and far-reaching lecture on the state of captive insurance in the Cayman Islands and globally that provided our students with an in-depth understanding far greater than any textbook could provide,” the Dean said.