Posted: Saturday, September 25, 2004 7:00 pm
The Associated Press
ST. PAUL, Minn. Twenty-three agriculture co-ops have formed their own offshore-based captive insurance company a form of self-insurance to better control their liability, auto and property insurance costs.
The company, Pillar Insurance Ltd., is believed by industry observers to be the first captive formed by agriculture co-ops nationwide. Pillar's 23 co-ops are all in southern Minnesota and range in size from $10 million to $200 million in revenue.
A captive insurance company, which shareholder members own and operate, lets shareholders stabilize the cost of insurance, invest their premiums and retain profits. They also assume more risk and must raise startup capital, set aside reserves to cover claims and meet regulatory requirements.
"We have seen our property and casualty premiums skyrocket in the last five years to the point where it's absolutely out of control and beginning to have a devastating effect on our company," said Jeff Neilsen, chairman of Pillar. "We had to do something about it."
Captive Design, a firm that helped establish Pillar, plans to market it to agriculture co-ops in other states, President Courtney Claflin said.
The Minnesota co-ops had self-financed their workers' compensation insurance for about a decade, so they were familiar with the self-insurance idea.
"They understood risk," Claflin said. "They were a very sophisticated group and it was easy for them to see the big picture."
Captives are the fastest-growing part of the U.S. insurance industry. Growth spiked after Sept. 11, 2001, when it became difficult to get certain types of property and liability insurance, said Carl Modecki, president of the Captive Insurance Companies Association in Minneapolis.
Captives appeared at least 40 years ago at large companies such as General Mills and Walt Disney, but now smaller business are forming them as insurance costs continue rising. Worldwide, there are 4,385 captive insurance companies, according to a newspaper report.