For the past two weeks, we described how businesses owners often increase success, profitability and asset protection by starting or acquiring a second business that serves their primary business. Often described as vertical integration, this approach is often effective because a supplier or service provider is already making a profit serving the parent company. A simple, well proven path for many businesses to achieve vertical integration is to start and own an insurance company, specifically a captive insurance company.
How Are Two Companies Really Better Than One (Part Three)?
For companies that have significant risk and high third party insurance costs, a captive insurance company can help reduce the company’s commercial insurance expenses. There are two primary ways that a owning a captive can result in lower expenditures on commercial coverage. First, the captive can cover the cost of deductibles and, importantly, cover a higher deductible which lowers the cost of commercial coverage. Second, captive insurance companies have access to the reinsurance market. Because a captive insurance company is a licensed insurer, it has the ability to bypass the commercial market to reinsure risk. Bypassing the commercial market means bypassing commercial pricing as well. This can result in significant savings to the parent company for the same level of insurance coverage.
What Is A Captive Insurance Company?
A captive is a unique insurance company. It includes its own corporation, insurance license, reserves, policies, policyholders, and claims. It is a sophisticated way to self-insure and is generally formed to insure the risks of its owners and related or affiliated third parties.
Are Other Companies Really Doing This?
The answer is “yes.” There are over 5,700 captive insurance companies in existence today and over 4,700 of them have been started since 1980. Consider an article from Insuranceonline.com that came out this week (Oct 25, 2012). The article is titled “SELF INSURANCE REVOLUTION THREATENS BROKERS,” and it states “Every year more firms are using self-insurance and saving internally for risks rather than taking out insurance policies, according to a new report. Avoiding brokers’ commissions is a key driver too.”
To read the entire article, click here: Insuranceonline.com
The Window To Start Another Successful Business (By Forming A Captive) and Pay Premiums In 2012 Is Rapidly Closing
It takes 60 to 90 days to form a captive insurance company. Call us to discuss whether or not a captive insurance company is the right move for your business portfolio.
Phone – 865- 386-4920
E-Mail – Tom@CICServicesLLC.com
Web – www.CICServicesLLC.com