The shared risk model is a “middle of the road model.” It rewards you when you perform well but it can offer more protection if a member has a bad year by other members contributing to the deficit. Its useful for members who are new to captive so there are less surprises.

Example 1- "I did well, my group did well."

As you can see, in this scenario the member performed well with a 13% loss ratio and the group also performed well with a 22% loss ratio. There are no deficits and no contributions to the deficit and members are all profiting.

Example 2- "I did poorly, my group did well."

In the second scenario this member had a difficult year, with a $179,080 deficit. In the shared model other members of the group can contribute to this deficit if they have not already built up surplus from previous years. Their contribution to their deficit is $12,849 while other members contribute a small percentage of their surplus to the struggling members. Members can then assist each other by sharing information on how to avoid such issues in the future.

If you have a difficult claims year with another A/B fund captive,  you will be assessed up to 2x your A fund which can be a lot. At CP you are much less likely to have an assessment at all due to the sharing model.  

Since CP is an organic and democratic organization, over time it we can make changes to optimize the model to either share more or less based on how you’re doing.

Everything in insurance is a tradeoff and there’s always an element of chance. The benefit of CP is the flexible governance model that allows you to optimize changes over time.

Quota Share

We also have a quota share in place which means another reinsurer has come in to take a portion of the loss fund. One of the benefits of that is that you have a lower capital requirements but disadvantages is that they take some of the profit potential out.  Lower capital requirements can be helpful for groups just getting started to decrease the entry barrier. This is an optional feature that can also be adjusted through board votes and carrier negotiations over time.