New Liquor Liability Option Enters the South Carolina Market

By Becky McCormack, CIC, CPCU, AAI, AINS, QAS, IIABSC President & CEO

South Carolina’s challenging liquor liability insurance market has led to the introduction of a new option for hospitality businesses. Ragnar Hospitality Insurance Company has launched a captive insurance program designed specifically for bars, restaurants, taverns, and other licensed establishments. The company was created to address the affordability and availability issues that have made liquor liability coverage increasingly difficult for many businesses to obtain. According to the company, premiums may be significantly lower than those currently available in the traditional marketplace, and underwriting is focused specifically on the hospitality industry.

For many of your clients, this program may be worth exploring. However, it is important to remember, and to help your insureds understand, that a captive insurance company is not the same as a traditional insurance carrier.

Unlike a conventional insurer, a captive is owned by or operated for the benefit of its participating insureds. Members of the captive share in the overall performance of the program. If the captive performs well, participants may benefit from stable pricing and a more tailored underwriting approach. Conversely, if losses exceed expectations, members may ultimately bear some of the financial impact depending on the captive’s structure and participation agreement.

While independent agents cannot place coverage through this captive program, they can still play an important advisory role for their hospitality clients. Encourage clients to fully understand the captive’s financial structure, participation requirements, capitalization, claims process, and any ongoing obligations before making a commitment. As with any major insurance decision, the lowest premium should be only one factor in the evaluation. What may be an appropriate solution for one business may not be the best fit for another, depending on its financial objectives, risk tolerance, and long-term plans.

Independent agents have always provided value by helping clients understand not only the premium, but also the long-term implications of the coverage they purchase. This new option provides another tool in the marketplace but one that deserves thoughtful evaluation and discussion.

Talking Points for Agents

When discussing Ragnar or any captive program with your hospitality clients, consider these points:

• Explain what a captive is. Clients should understand they are participating in an insurance company owned for the benefit of its members rather than purchasing coverage from a traditional commercial insurer.
• Review the participation agreement carefully. Understand any capital contributions, membership requirements, assessments, surplus distributions, or exit provisions before recommending participation. As of yet, IIABSC has not seen the policy form so we can’t give any guidance on how it may differ from traditional insurance.
• Discuss financial strength differently. Traditional carriers are typically evaluated through ratings such as A.M. Best. Captives should be evaluated based on capitalization, reinsurance arrangements, governance, and overall financial stability.
• Review claims handling. Ask who administers claims, whether defense is provided, how claims decisions are made, and whether coverage disputes are handled differently than in the traditional market.
• Consider the client’s risk tolerance. Some businesses may value the potential long-term benefits of captive participation, while others may prefer the certainty of a traditional insurance carrier even at a higher premium.
• Evaluate the entire insurance program. Liquor liability should not be viewed in isolation. Review how the captive program fits with the client’s general liability, property, workers’ compensation, umbrella, and other coverages.
• Document your discussion. As with any significant coverage recommendation, document the options presented and the factors considered in making the final decision.