A captive insurance program is an alternative licensed insurance company that is usually owned by a business owner(s). The main focus of the captive insurance company is on providing coverage to the business owner(s) and mitigating their exposure to traditional insurance companies’ volatile prices or that can’t meet the specific requirements of a company.
The Purpose of a Captive Insurance Program
By establishing an independent captive insurance program, the parent company can insure difficult risks, increase their cash flow, reduce costs, and gain direct access to reinsurance markets. Moreover, companies that have created a captive can indirectly write policies, set premiums, assess the risks of subsidiaries, and invest unused funds for future claim payouts or return it in the form of profits. In other cases, a captive can even insure the risks of a company’s customers.
Ultimately, a captive program is a renewed alternative type of risk management that is more practical and becoming a popular means through which insurance companies can control how they are insured and protect themselves financially. Captives can be set up in various ways, which can be broken into two broad categories, namely:
Non-sponsored captive – the parent company is the creator and main beneficially. This category consists mainly of single-parent and association.
Sponsored captive – this means that the captive is owned and managed by a different company that lets other firms rent insurance. This category consists of Rental Captives, Protected Cell Captive, and more.
Is a Captive Insurance Program Right for My Business?
A captive insurance program is suitable for a company with steady cash flow, high insurance premiums, palatable risk, and low claim frequency. But since companies have different needs, there are other reasons a company may consider a captive program. Still, a company can combine its enterprise risk across its warranty program, workers compensation, employee benefits, and healthcare compensation.
If you feel that a captive could work best for your company, don’t hesitate to call us. We are a trusted captive manager and strategist focused on helping small and mid-sized company owners turn their risk into wealth by owning insurance companies.
Reasons to combine enterprise risk management with a captive program:
- Asset protection
- Wealth accumulation
- Stronger business model
- Improved risk management
- Improved cost control
- Insurance profits
- Potential advantageous tax treatment
When looking for a captive, it pays to evaluate your commercial portfolio to determine the best captive structure. Some of the captive coverage types include:
- Workers compensation
- Cybersecurity terrorism
- Professional liability
- Employee healthcare insurance
- Extended warranty & service contracts
- Product liability
Benefits of a Captive Insurance Program
The principal benefits of creating a captive insurance company are:
Flexibility in coverage management – Unlike traditional insurance, where it’s hard to find a suitable structure for specific tasks, the company owners control the coverage structure within a captive. This can help promote best practices among shareholders and help every participant improve results and reduce loss experience.
Tailored coverage – Coverage is customized to meet the parent company’s risk profile and specific needs, more so when coverage is unattainable due to price or market factors.
Ability to access reinsurance markets directly – A captive allows a company to access reinsurance direct from the reinsurer and avoid markups.
Tax benefits – A captive provides several tax benefits, including deducting paid premiums, accumulating underwriting, and several other tax incentives based on the domicile.
Lower insurance costs depending on the captive’s claims handling costs and loss experience.
Why Should You Work with a Captive Insurance Manager?
Creating and managing a captive can be challenging, especially to businesses that are new to using captives. Remember that captives are highly sophisticated and regulated businesses that require a high level of competency from the selected service providers.
As industry leaders, we specialize in a wide range of tasks, including reserve calculations, underwriting risks, handling claims, setting claims, and filing with the state insurance department.
We will also handle regulatory compliance, Financial Reporting, and manage the day-to-day operations of the captive insurance company. Additionally, we work with captive owners to ensure open communication and help them meet their responsibilities and accomplish their goals.
Additionally, we provide guidance and upfront support and throughout the captive’s lifecycle.
We provide valuable insurance management structures to allow businesses to access suitable coverage. We will work closely with you to establish functional and compliant captive programs, make necessary regulatory filings, and design insurance policies.
Above all, we continuously manage the captive by handling financial and accounting responsibilities and partner with business professionals to ensure tax obligations and audits are adhered to.
Contact our team today to start exploring a captive insurance program is right for your business.