Establishing a multi-year government captive program in the context of an annual budget appropriation cycle

How do you establish and operate a multi-year government captive insurance program within the context of a government’s annual budget appropriation cycle?

This was the biggest challenge in establishing the British Columbia government’s risk-pooling programs through a captive, said Phil Grewar, executive director of the risk management branch and government security office for the provincial government.

Grewar spoke at the 8th Annual Canadian Captives & Corporate Insurance Strategies Summit in Toronto on May 17.

He noted B.C. self-insures its entire healthcare sector, the Kindergarten to Grade 12 public school sector, 12 Crown corporations and approximately 10,000 service providers. The province sought to self-insure when healthcare costs began to rise in the 1980s.

One major challenge was the inability to accumulate funds to pay for increasing costs over a multi-year timeframe. Government policy at the time was that unused funds would be appropriated at the end of the fiscal year.

Grewar gave the example of a government department needing insurance to cover a $10-million risk exposure. The captive insurance program would establish a $5-million premium. Enter an understanding multinational broker.

At the request of the government captive, the broker agreed to invoice the captive for $5 million. The captive paid the invoice, so the broker received $5 million.

The captive then invoiced the broker for $5 million, which the broker paid back to the government. Since the money from the broker emanated from outside of the government, the $5 million the captive received from the broker entered the government’s books as “deferred revenue,” which is allowed to accumulate beyond fiscal year-end.

To keep the auditor general from being concerned about a long-term increase in deferred revenue, the captive program sought and achieved a longer-term solution — a statutory amendment that allowed the captive to move ahead with self-insurance initiatives.

Section 30 of the Financial Administration Act establishes a special ‘Insurance and Risk Management Account.’

The account “is continued as a special account for the purpose of providing insurance or risk management services, or both, to participants or for the benefit of participants,” the act currently states.