By Matthew Brodsky
The American Alpine Club is the oldest mountain climbing club in the United States. Its 10,000 members travel the world looking for their next great adventure, whether that is located in the Rockies, the Great Smoky Mountains or up K2, Everest, or the world's other awe-inspiring peaks. It is hopefully rare, though not unheard of, for its members to get caught in avalanches, or worse, tumble off a mountain themselves.
"You start talking about this stuff in the insurance community, and people hang up the phone on you," said Daniel Richards, CEO of Global Rescue, which counts the American Alpine Club as a client. When one of its climbers is in danger or injured in the wilderness, the staff of Global Rescue saves the day.
Yet if all these underwriters are hanging up the phone, it would be hard for the mountain club to use Global Rescue, wouldn't it? After all, life-saving services do not come cheap. If something were to happen to one of its members, the American Alpine Club would be on the hook to pay Global Rescue's bill.
The traditional insurance market for this exposure was too risk-averse, but an alternative risk transfer tool allowed Global Rescue to take on more risk for the club and its other clients: That tool is captive insurance. Thanks to its captive, Global Rescue can design a program so that the mountain club members can risk their necks on whatever peak they prefer, while underwriting coverage in a tailored and cost-effective way.
Of course, the American Alpine Club "is not your average corporate client. They're an extreme example," Richards said. But even everyday corporate clients can be risky. With the economic downturn and resulting layoffs in recent years, many companies have been forced to send their remaining employees on trips farther afield more often to find new sales and supply chains. Corporations are venturing into untested waters, such as Sub-Saharan Africa and Southeast Asia, "where there is vulnerability, sometimes extreme vulnerability," Richards explained.
Global Rescue provides a suite of risk and crisis management and response services to three main client groups. For individuals and families, Richards said, consider the services like AAA for personal risk. The firm also serves companies and their employees. And Global Rescue has clients in the government, including the likes of NASA.
It partners with Johns Hopkins University to provide specialist medical advice to injured or ill clients on the road. It can medevac that person to the medical facility of choice through its relationships with contracted air transport providers. And it can protect clients in volatile and downright dangerous political and social situations, and rescue them when needed, with its team of former Special Forces commandos.
You can find Global Rescue in recent headlines, rescuing a New York couple after a plane crash on Christmas Day in Burma or saving a professor who had a heart attack while working abroad in Qatar.
"We're never going to be the biggest provider of these services, but we certainly occupy the top quartile in the quality," Richards said.
Previously, Global Rescue partnered with carriers in the traditional insurance market to allow itself to serve all of its three client types, but at times the firm would have to take on these clients on a non-indemnified basis.
Five years into their business, Richards and his colleagues at Global Rescue realized that they understood the risks they faced better than anyone else, including any underwriter in the traditional market. Global Rescue knew more about "optimizing the outcomes" for clients too. In other words, with their assistance, clients were more likely to experience fewer adverse events abroad and when those events did occur, they did so at magnitudes of less severity and at dramatically lower costs, said Richards.
He gives the analogy of a house fire. Insurance companies can try to help the homeowner avoid fires in the first place, but once that fire ignites, the insurance company is powerless. They don't operate their own firefighting crew. In the case of their fires, on the other hand, Global Rescue can "dispatch the cavalry and potentially shape the outcome" before the house burns to the ground, explained Richards.
Sure, plenty of carriers write political evacuation insurance or "security" coverage, but again, they are not there to put out the fires.
"They will outsource to someone else, and that's where the problems happen," said Richards. "They wouldn't be able to dig in the way we do," he said about underwriters.
With traditional insurance, problems then typically would occur when client risk profiles are nonstandard. Then the underwriters might jack up their rates, or simply refuse to underwrite at all. That would leave a Global Rescue client to either terminate a mission and not send employees into a given situation, or do so and cross their fingers.
"They'll either spend an unbelievable amount of money, or they go uninsured, or they pass on the business," Richards explained.
But then in a meeting with the insurance brokers at Willis who they were hiring to place their traditional business, the Willis folks mentioned that Global Rescue might want to consider captive insurance as an alternative. Richards recalled that he had to be told what captive insurance was, but once he knew, he weighed the idea.
Initially, firm leaders were not certain if Global Rescue was a large enough company to support captive formation. Though it's growing and has a wide diversity of clients ? as many as 3 million people use its service, ranging from Fortune 50 employees to everyday families ? Global Rescue fits firmly in the middle market.
But Richards and company at Global Risk decided if they could share in the risk and do some of the underwriting, they would bring value to clients in the form of reduced costs and be able to control their own destiny by creatively structuring risk transfer, as well as open another line of profitable business for themselves.
"The more that we talked, the more it seemed to make sense," Richards remembered.
Since 2010, the captive has been a reality. Now in its fourth year, it operates in part by directly insuring client risks, in part by reinsuring the risk of client captives.
To understand how it works, imagine an employee is traveling in a remote part of Vietnam when she is involved in a terrible car crash. Global Rescue would arrange to medevac that employee out by providing secure emergency transit from the site of the accident to the nearest airfield, and then through a private aircraft out to the medical facility of the individual's choice if possible. Such an operation could cost in the hundreds of thousands of dollars, or even seven figures. The captive would fund it.
Beyond this obvious advantage of funding security and evacuations situations if and when they do arise, the captive has also been a "competitive advantage," says Richards, because it allows his firm to be more flexible and creative in the way that it helps to prevent those situations from ever arising. And it allows them to take on essentially any risk.
Remember those "nonconforming" risks that traditional underwriters might not touch at all? Thanks to the captive, Global Rescue can consider irregular risks as "conforming," Richards said.
"We use the captive to underwrite around and through some of these types of risks," Richards said.
Global Risk considered other domiciles for its captive, both onshore and off, but ultimately chose Vermont. One of the biggest selling points was the care and attention that captive regulators in the Green Mountain state were willing to pay.
"The first and foremost [reason] is because of their ability to work closely with our captive," Richards said. "You still have that ability to have that relationship."
Currently, Global Rescue uses Willis as its captive manager, Saslow Lufkin & Buggy for its accounting and Primmer Piper Eggleston & Cramer for legal services.
When forming the business, Global Rescue was told on a number of occasions by service providers and regulators that theirs was going to be a captive never seen before.
"We definitely raised some eyebrows," said the CEO. "It is very rare for Navy Seals and Army Rangers to be involved in the same sentence as captive insurance."
But then people in the captive industry who were approached tended to quickly get "enthusiastic" about what the captive could offer ? the fact that the captive would support the life-saving services that its parent company provides.
For Global Risk, ultimately the captive allows the firm to grow its business faster than ever and truly differentiate from competitors.
"The integration that has occurred between our core services and our captive doesn't exist in any company like ours in the industry," Richards said proudly.
MATTHEW BRODSKY is the editor of Wharton Magazine.
April 12, 2013
Copyright 2013© LRP Publications