Captive Insurance

You can pay an insurer to take on your risk ... or you can retain it.

That’s the question a growing number of businesses of all sizes and in all kinds of sectors are asking themselves as they look for ways to regain control of their insurance budgets and for whom a larger deductible just doesn’t cut it.

These companies increasingly are moving into what are known as alternative insurance options. And one such option is captive insurance — a form of self-insurance where a business joins a group of other companies in a non-insurance company that underwrites the risks for all and allows them to regain control of their insurance budgets.

A captive can be used to insure almost any of its members’ exposures, from traditional property and casualty coverages to employee benefit programs.

Unlike traditional insurance, where coverage is purchased from external insurers, a captive allows a company to join with other like-minded, successful business owners to better control its risk management and insurance processes.

The captive operates like any commercial insurer, adhering to regulatory requirements and underwriting standards, but focuses on the specific needs of its members.

Premiums are based on your company’s actual claims experience and exposures, rather than a random population of companies that may not be committed to continual improvement.

6 Top Benefits of Captive Insurance

1. Cost Efficiency: By eliminating the profit margin of commercial insurers, captives can help companies reduce their insurance costs. The parent company retains underwriting profits, which would otherwise go to an external insurer.

2. Enhanced Cash Flow: Premiums paid to the captive can be invested, providing a source of investment income and improving cash flow management for all members in the captive.

3. Enhanced Profit Potential: In group captives, safety pays. Member companies that effectively manage their frequency claims are rewarded with lower costs of insurance over time, as well as increased productivity from workers that are on the job a higher percentage of the time. Driving down losses translates to unused loss funds, which are returned to members in the form of dividends.

4. Customized Coverage: Captives allow for the design of highly customized insurance programs addressing specific operational needs and exposures.

5. Improved Risk Management: With more risk retained, companies have a vested interest in implementing robust risk mitigation strategies.

6. Potential Tax Benefits: Depending on the jurisdiction and structure, premiums paid to a captive may be tax-deductible.

Is Captive Insurance Right for Your Company?

Captive insurance is a long-term strategy requiring sustained commitment.

Deciding to join a captive insurance company involves careful analysis of your company's risk profile, financial health, and strategic goals. Consider these questions:

Risk Profile: Does your company have a risk profile making traditional insurance expensive or insufficient?

Financial Strength: Can your company provide the necessary capital and ongoing funding for the captive?

Long-Term Vision: Is your company prepared for the long-term commitment required by the captive?

Conclusion

Captive insurance offers a unique and strategic alternative to traditional commercial insurance, providing cost savings, customized coverage, and financial benefits. However, it also requires a significant investment of capital, at least some management resources, and a long-term commitment. By carefully weighing the benefits and challenges and considering your company’s unique circumstances, you can make an informed decision about whether captive insurance is the right solution for your business.

Partnering with experienced advisors and service providers can enhance the success of your captive insurance program, ensuring it meets your risk management needs and supports your strategic objectives.