Charlene Tilbanie, Vice President at Global Captive Management, Ltd. (GCM), advocates that the traditional trust model is inadequate for modern healthcare risk. She makes the case that a captive is essential for achieving the financial transparency, superior control, and strategic resilience needed to navigate risks like ‘nuclear verdicts’ and ‘emerging exposures’.
Healthcare systems face a wide spectrum of risks — from the commonly known medical malpractice, cyber threats, and property damage risks to more recent challenges, such as sexual misconduct allegations. For most healthcare systems, the primary goal is protecting patients and delivering quality care.
Having an efficient risk management strategy supported by adequate funds is the core foundation of reducing adverse events and threats stemming from these risks, which can, in turn, have a negative impact on patient outcomes and the company’s reputation. In today’s environment of ‘nuclear verdicts,’ where claim payouts are costing tens of millions of dollars, healthcare leaders are evaluating their risk financing strategies as these payouts can destabilise even the largest health systems and compromise the core mission of saving patient lives.
For decades, hospitals and healthcare systems have recognised the need to carefully manage the health of the system itself and the needs of its patients. In fact, some have turned to trusts as a self-insured retention vehicle to fund and manage these exposures. While trusts have provided a practical solution, the evolving risk landscape has prompted many organisations to consider whether a captive insurance company may offer not only greater flexibility and financial efficiency but also strategic value.
The Role of Trusts in Healthcare Risk Financing
A trust is a legal arrangement in which funds are set aside and managed by a trustee for the purpose of paying claims. The appeal of a trust lies in its simplicity and lower cost of establishment. They typically require less upfront capitalisation than captives, are subject to fewer regulatory requirements, and can be set up more quickly. They are primarily funded based on actuarial projections, and for many hospitals (especially smaller systems or those just beginning to self-insure), they offer a practical way to pool resources and manage predictable or known risks.
However, trusts come with their fair share of limitations. They are constrained in their ability to tailor coverage, thereby proving them to be ineffective for strategic use. They also lack transparency in claims management and reserve development, making it difficult for leadership to identify trends, address root causes, or proactively adjust strategies. As a result, while trusts provide a practical funding mechanism, they may leave organisations exposed to surprises and volatility.
Captive Insurance Companies: The Better Alternative
GCM has been serving healthcare captives since 1982. With the Cayman Islands holding the enviable position of being the number one domicile for healthcare captives, GCM’s approach to healthcare captives goes beyond just financial reporting.
Captive insurance companies, by their nature, offer a more flexible approach to risk financing and management. Unlike commercial insurance, which provides a boxed-in product, a captive allows a hospital or health system to retain and manage its own risks in a formalised, regulated structure. Healthcare systems are able to customise policies, coverages, and limits based on their unique profiles. Captives also provide direct access to reinsurance markets, enabling healthcare systems to secure additional coverage for their claims. In addition, there are potential cost savings through retained underwriting profits and the ability to generate investment income on said profits.
One of the most compelling advantages of captive insurance is the transparency they bring. When managed in an efficient and strategic manner, captives empower leadership teams to make decisions backed by solid data that can help reduce risk and ensure reserves are adequate. Over time, a well-structured captive can evolve as a strategic asset that supports the long-term growth of the healthcare system as a whole.
With these benefits in mind, GCM partners with healthcare organisations and their captives to understand their unique challenges — whether it is expanding patient services, acquiring new equipment, or funding safety initiatives. We provide technical analysis and tailored solutions that ensure captives remain resilient and well-capitalised, even amidst competing priorities.
While captives offer significant advantages, they also come with trade-offs, as they require significant upfront capitalisation, ongoing regulatory compliance, and sophisticated management to ensure long-term viability. Nevertheless, we at GCM, in our role as captive manager, help our clients address these challenges and continuously navigate them throughout the lifespan of the captive.
More Than The Numbers
When evaluating self-financing options, healthcare leaders must weigh the relative strengths and weaknesses of captives versus trusts. Both structures allow organisations to retain risk rather than transfer it to commercial insurers, but they differ significantly in terms of regulation, flexibility, and long-term strategic value. Beyond the technical benefits, leaders should also consider how their choice aligns with the mission-driven goals of their healthcare organisations.
Hospitals and healthcare systems are on the frontlines of community care, helping patients recover, regain their health, and return to their lives. When considering the choice between a captive or a trust, the needs of patients should also be a major factor. Funding for critical initiatives — whether it is investing in new equipment, expanding patient services, or launching safety programmes — could be better served by a strategic asset such as a captive rather than a trust. Having the right partner is equally important, and captive managers like GCM who specialise in healthcare, understand the complex and often competing priorities these organisations navigate.
Balancing the financial needs of the parent organisation with the requirement of keeping the captive financially strong is a delicate task. Rather than offering one-size-fits-all solutions, GCM works closely with healthcare clients to understand the system’s unique challenges and objectives. This collaboration often involves writing new lines of business, expanding coverage limits, and funding initiatives that directly impact patient care.
Future Outlook
The landscape of healthcare risk management is evolving rapidly, and the choice between a trust and a captive will only become more important in the years ahead, especially in light of current trends:
Growth of group captives: smaller and mid-sized healthcare systems that may not have the capital to form a single-parent captive are increasingly joining group captives. These structures allow multiple organisations to pool resources, share risk, and access the same benefits of transparency, reinsurance, and strategic control that larger systems enjoy.
Emerging risks beyond malpractice: while malpractice remains a core exposure, healthcare systems are facing new and complex risks. Captives are uniquely positioned to adapt to these emerging risks, offering coverage where commercial markets are limited or excessively expensive.
Strategic integration of risk management: increasingly, healthcare leaders are viewing risk financing not as a siloed function but as part of a broader enterprise risk management strategy. Captives, with their detailed reporting and governance requirements, can serve as a centre for data-driven decision-making, thereby aligning financial resilience with patient safety and organisational growth.
Conclusion
For healthcare systems, the stakes of risk management continue to rise. The choice of a financing vehicle is not simply a technical decision about how to pay claims; it is also a strategic decision that can shape financial stability, and ultimately deliver on the mission of patient care.
Trusts have long provided a practical and accessible way to fund predictable risks, particularly for smaller systems or those beginning their self-insured journey. Yet, their limitations, especially around transparency and insight into claims and strategic value, make them less suited to today’s complex and volatile environment. Captives, while requiring greater investment and oversight, offer healthcare leaders the tools to not only finance risk but also understand it. With clearer insights into claims, reserve development, and loss drivers, captives empower organisations to make data-driven decisions, reduce volatility, and align risk management with long-term strategy.
As the healthcare landscape continues to evolve, the momentum is shifting toward captives as the more robust, future-ready solution. For systems seeking resilience and strategic advantage, captives represent not just an insurance mechanism, but a cornerstone of strategic risk management.
At GCM, we are proud to support these organisations in their mission to deliver quality care and improve patient outcomes. Personally, I find immense fulfilment in this work, knowing that our efforts help healthcare providers focus on what matters most — healing and serving their communities.
