Captive-Group Insurance Rewards Safety

Group-captive insurance program, cooperative subculture of safety.
One result that comes with the group-captive insurance program is the creation of an impressive, cooperative subculture of safety, according to Mark Shipp. Photo courtesy of The Arbor Group.

This is a group that was 30 years in the making, says Mark Shipp. He is talking about Ascend, the first tree-care-only, group-captive insurance program for the tree care and vegetation-management industries.

Shipp is an insurance veteran who’s spent 30 years in the tree care industry. He’s a former TCIA board member who was involved in several TCIA initiatives, including the name change (from National Arborist Association) and creation of the Accreditation program, the Certified Treecare Safety Professional (CTSP) credential and the Arborist Safety Training Institute (ASTI).

“I’ve dedicated my professional life to the tree care industry,” he says. For the past 20 years, he’s envisioned, planned and networked to create Ascend.

On the website of Shipp’s company, the Hub Arbor Insurance Group, a splash page with video explains the concepts with an explainer and overview of the program’s structure. (
landing-pages/hub-arbor-insurance-group) In simple terms, members of a captive form a mini-insurance company, managed by a third-party administrator.

Shared risk

Catastrophic and medium-sized losses are shared amongst the group, and the small losses are pretty much handled by the individual company, Shipp explains. “We free up funds with what we call a frequency fund and a severity fund. Then we have program administration expenses and those kinds of things. And we have a backstop from the insurance carrier, so one loss is not going to hurt that bad.”

Smaller, predictable and controllable claims are the obligation of the individual member who suffered the loss. (These losses are funded and paid through the captive.) Medium-sized losses that are unpredictable for any single member, but predictable for the group, are shared (proportional to size of premium) by the group.

“Think of a severe motor-vehicle accident,” says Shipp. “Each member might have one every 10 years. None of the members want to suffer the volatility that would result from retaining that risk. The group as a whole has predictable results, and so it makes more sense for the group to share these than to transfer the risk to an insurance company who would add a profit margin and risk-taking premium.” (These losses are funded and paid through the captive.)

“Larger, catastrophic, non-predictable claims are the obligation of the insurance company,” Shipp continues. “This is the ‘sleep-easy’ coverage that the group needs, and these are paid by the insurance company.”

Increased safety

Insurance rewards safety graphic
How the program works. Graphic courtesy of Ascend, a Garnet Captive Program.

One result that comes with the captive is the creation of an impressive, cooperative subculture of safety, according to Shipp. Its promise is to bring financial incentives, as well as improvements that go beyond monetary gain.

“Everyone’s pulling oars in the same direction,” Shipp says. “The sense of community is fantastic. It’s great. And we’re doing training like aerial-rescue training, CPR training, all this stuff that’s necessary to help them reduce their risk. (And we are) really focused also on keeping auto claims down. We’re doing whatever we can do there, but the structure allows for variability in their insurance costs.”

If there are no claims, the group members receive portions of their premiums back.

Money back

Distribution calculations for a member receiving portions of their premiums back start 18 months from expiration of the policy period. This typically equates to 30 months from inception of the policy. Ultimate distribution potential is equal to 60% of premium, plus investment income earned.

“Each member’s results are based primarily on their own loss performance and, to a lesser extent, the group losses,” says Shipp. “Distribution calculations occur every year until all claims for the program year in question are closed or close to being closed.”

Like-minded members

Tree cutting safely by roadside
Members of the captive group might share some claims, such as auto accidents, rather than transfer the risk to an insurance company that would add a profit margin and risk-taking premium. Photo courtesy of Core Tree Care Inc.

Insurance captives – groups of companies that band together to self-insure – is not a new concept. There are tree care companies that have banded with companies from other industries in diverse groupings. But the well-known risks of tree care companies make them less-than-desirable partners.

The minimum premium includes all lines of coverage, general liability, auto and workers’ compensation, starting at $250,000.

“Generally speaking, this program starts to make sense at about $200k or so in combined premium (for the three coverages), but it really depends on the prospective member in question,” explains Shipp.

“We don’t have hard-and-set rules,” he says, “What we’re really looking for are tree care companies that are diligent in their management and safety – these companies tend to pay more in premiums over the long term in the standard market than they have in losses, and as a result, make the traditional insurance companies a lot of money over the long term.”

The (tree care) groups are homogenous in terms of industry, but not size. The 13 companies in the Ascend captive vary in size from modest to very large. The goal, Shipp says, is to grow Ascend to 100 of the top tree care companies nationally.

“We’ll probably have 20 by the end of the year (2023),” Shipp says.

Saving lives and money

“The goal of the group captive is to allow better-than-average employers to pay for their insurance costs based on their actual loss experience instead of an insurance underwriter’s perception of the industry or what the cost might be,” says JJ Purdy, president of Garnet Captive Services. Garnet has been creating and managing group-captive programs for mid-sized employers for more than 20 years, and manages the Ascend captive.

“Our programs allow companies the ability to reap the profits normally enjoyed by the large insurance companies, while also having strong protection against uncontrollable/unpredictable large claims,” says Purdy. “Garnet programs have a strong and long track record of success – downward-trending premium pay-in and profit returns that average more than 18% of members’ premium pay-in.

“We are particularly proud of Ascend, as it provides an amazing solution to the best operators in the tree care industry,” Purdy continues. “This is an industry that has historically been underserved by the traditional insurance industry. And the traditional insurance industry has, unfortunately, been the only choice for most tree care owners.

“Not only does Ascend provide tree care companies with a long-term, stable, low-cost insurance solution, but it provides services and resources that are specialized for the unique needs of this particular industry,” Purdy says.

“Finally, it provides members the opportunity to collaborate with other best-in-class tree care professionals from around the country,” Purdy adds. “This program is a game changer for tree care companies that protect their employees and operate in an organized, professional and safe manner.”

Why now?

Multiple factors made it possible to create a tree care captive now, including mechanization in the field and changes in leadership, according to Shipp.

“The way the Gen Xers are with their employees is completely different than the prior generations,” Shipp says, with (employers) now putting greater emphasis on technology, safety and employee well-being.

“I can give you an example. I remember hearing comments from tree-company owners that, ‘All my employees are stealing from me. I don’t trust them.’ And riding them like a mule and not giving them the tools you have now to succeed.”

Safety commitment

Safety at tree cutting site would add profitability
“Because we’re in the utility tree-maintenance industry, our premiums have been just getting higher and higher year after year for our wildfire coverage that we have to have,” says John Hernandez, one of the first members of the Ascend captive. Photo courtesy of Core Tree Care Inc.

To be accepted into the captive, a company needs to be committed to safety, with a risk profile that supports that commitment.

“It has to do with attitude, really,” Shipp says. “Attitude toward safety and the willingness for improvement and execution. If someone has a good attitude, that’s really, to me, the number-one factor in the company that creates a good risk profile to start with, their attitude toward their employees.”

Which doesn’t mean that a company needs to be perfect.

“If the company (claim) history is absolutely ridiculous, then they’re not going (to get) in,” Shipp says. “But if there’s a story behind it, we’re able to navigate that.”

“The commitment is not only just to safety, but it’s a little bit more than that,” says Josh Caudill, president of Safety Leadership Innovators, a four-year TCIA corporate member company based in Redlands, Calif. Caudill was contracted by Purdy to serve as director of risk management for the program. “It’s a commitment to their entire organization, that they’re going to continue to reinvest in safety, reinvest in their employees and continue to grow and get better incrementally over time.”

What if a company is rejected?

“If we talk with a tree care company that just isn’t quite ready yet – say they just started up or have some holes in their safety programs – we will create a plan and support for that company to improve their operation,” says Shipp. “It might take a year or two of hard work, but the company operations, culture and safety will benefit.”

If the company follows the plan, they’ll eventually be a fit for the Ascend program and be able to reap the rewards of membership.

Risk assessment

The first step for a company interested in Ascend is answering a 400-plus-
question risk assessment.

“Based on the results of that risk assessment, we determine whether they’re eligible for the captive or not,” Caudill says. “It is definitely not 100% that everybody gets in, and, to be honest with you, it’s thoroughly vetted before it even gets to my level. And then we take any gaps we discovered during the process and find immediate solutions for the ones we might be concerned about. For the ones that just need to get incrementally better over time, we put together goal settings for each year. Every year, each company in the captive has a goal-setting session with me and my team.”

Safety Leadership Innovators customizes training based on individual company needs. It works with everybody in the captive, Caudill says, and engages with employees at every level.

“I just did an aerial-rescue training for one of the captive members, and everybody, including the CEO, was present,” he says “They all leave with my information. So, if they have any questions or anything they just want to bounce off of us, we are an open book.”

Signing up

One of the newer captive members is The Arbor Group, a third-year TCIA member company, which joined this past May.

Tree worker committed to safety
To be accepted into the captive, a company needs to be committed to safety, with a risk profile that supports that commitment. Photo courtesy of The Arbor Group.

“In the beginning, you have to go a traditional route when it comes to insurance, workers’ comp, general liability, auto – any of those umbrellas,” says Larry Martony, CTSP and managing partner for the Newport Beach, Calif.-based company. The Arbor Group established a better-than-average – where low is better – experience-modification rating of 0.76 (the average experience mod, by definition, is 1.00 See sidebar for a more detailed explanation of mod rate). “Through that process, we started to talk to our insurance broker, which is Hub, and (Mark Shipp) told us about a new program they had just rolled out where they were putting together a self-insurance program for like-minded tree care companies in the industry to basically self-fund it.

“If you’re a safe company, you could get the rewards of being a safe company,” Martony adds. “If you didn’t have claims, you’d get dividends paid back starting year three. That, obviously, interests us, because we were already a safe company, and we realized how much money we were leaving on the table by not going into a captive.

Experience Modification Rate Explained
Experience Modification Rate (mod rate) is the amount that your workers’ compensation (WC) insurance premium is adjusted to accommodate your company’s actual safety and injury loss record. It adjusts your WC premium up or down, depending on how “safe” or “unsafe” your company is.
The industry average is 1.0. If your company has a poor safety record, your mod rate will be higher and you will pay a higher WC insurance premium.
For example, if your mod rate is 1.25, you will pay an additional 25% on your WC insurance premium to account for your poor safety record when compared to the rest of the industry. Likewise, if your company has a good safety loss record, like
The Arbor Group’s rate as mentioned in the article, you will get a lower mod rate and your WC premium will be lower. For example, The Arbor Group’s WC mod rate is 0.76, so it gets a discount of 24% off of its WC insurance premium.

“There are risks involved in it, and if you are unsafe or you’re trying to do things that are maybe unscrupulous, there’s a little bit more exposure,” adds Martony, who now sits on the new-member committee for the captive. “But if you are doing the right thing, you’re going to massively reward yourself with the financial benefits, and you have more control over your claims.

“So if someone has a workers’-comp issue or a GL (general-liability) or an auto issue, you have a lot more control, because you’re almost in charge of your own monies. You can fight things or be a little more thoughtful on the way you approach claims than if you’re in the traditional route, where the carriers and the insurance companies dictate that for you.”

Vegetation management

John Hernandez, owner/president of Core Tree Care Inc., a six-year TCIA member company based in Corona, Calif., was one of the first members of the Ascend captive.

“Because we’re in the utility tree-maintenance industry, our premiums have been just getting higher and higher year after year for our wildfire coverage that we have to have,” Hernandez says. “The captive was able to address some of those issues and concerns and had a better approach to that, to (use) better market pricing to address that. We always have performed well and been very fortunate on our loss runs and what not. The benefit of being able to get a refund back was obviously a huge draw to it.”

It’s a common sentiment that safer practices on the job are good for the financial health of a company, Hernandez says, but the captive concept can provide specific savings and rewards. His first year, his premium was slightly lower than with his previous insurance. And if he gets 40% of the premium back after years of no losses, he says, “It’s a huge, huge savings.”

Creating a safety network

All of those involved in the Ascend captive spoke about the additional benefit of creating what Hernandez calls “a networking opportunity of like-minded individuals of our same type of caliber of safety and workforce.” Martony called the group “kind of like a fraternity.”

“It’s definitely a good group of people,” Hernandez says. “There’s no threat of, ‘Hey, this guy’s not like us, and you don’t want to be surrounded by them.’ There’s people in the captive who are maybe only doing $4 or $5 million in revenue a year, where we’re a hundred-million-dollars-a-year revenue plus. There’s all different sizes and shapes of it, but we all have similar experiences and different things we can share with each other at different stages of our careers.”

For a company considering Ascend or another captive, Hernandez offers some advice.

“A lot of us in our industry buy insurance just because it’s something you have to buy,” Hernandez says. “Now it could become almost a revenue stream back to you.”

David Rattigan is a former correspondent for The Boston Globe and People magazine who has written for the Tree Care Industry Association for 19 years. He’s received 15 awards for journalism and is currently an adjunct communications professor in Massachusetts. His work has appeared in seven national magazines including Sports Illustrated, The Sporting News, The Robb Report, The Christian Science Monitor and Lawyers’ Weekly USA.

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