CAPTIVE INSURANCE

TAKE CONTROL OF YOUR INSURANCE SPEND

What is captive insurance?

Captive insurance is a form of self-insurance in which a business sets up a wholly-owned insurance subsidiary to insure its own risks. The captive serves as an alternative to buying insurance from an insurance company.

Captive insurance can be used for many types of risks, including general liability, property, umbrella, product liability, professional liability, workers’ compensation, and more.

If you’re familiar with self-funded employee benefits and how they operate, then you have a good idea of how a captive works. 

Greater Cost Control

Since the captive insurer is owned by the policyholder, you'll have more control over premiums, resulting in lower costs.

Cover Evolving Risks

Captives respond quickly to a changing economy. You can cover risks that are not mainstream or have high, unviable traditional premiums.

Improve Cash Flow

Pre-fund losses through premium payments and eliminate the frustration of unexpected losses. Over time, with no claims, capital grows.

Investment Opportunities

You can retain and invest 100% of the profit of your captive insurance company. Your premium will no longer be a sunk cost.

Potential Tax Advantages

If specific risk-distribution standards are met, premiums paid to a captive insurer can be tax deductible and reduce your tax rate.

Should I consider captive insurance?

The answer to this question really depends on your individual situation. Captive insurance can be a viable option for businesses interested in finding more cost-effective and tailored insurance solutions. However, a captive typically requires:

  • A good loss history with low claims
  • Profitability & financial stability
  • Captive expenses to be below 20% of premium
  • Ability to pay for claims and secure future losses.
 

What are the risks of captives?

The primary risk associated with captive insurance is the potential financial risk for losses to exceed the amount of capital that has been held in reserve.

There is also a legal risk associated with the complexity of the structure and regulations governing captive insurance companies. These could lead to costly disputes or regulatory penalties if they are not properly managed. 

Additionally, there is an operational risk associated with the management of a captive insurance company. It requires specialized personnel and resources to ensure a reliable and efficient operation.

Finally, there is also a risk of becoming overexposed to a single insurer or risk exposure, as captives may be more likely to accept higher risks than traditional insurers in order to remain cost-effective.

Many businesses who self-insure get outside experts to oversee day-to-day management of the captive.

 

Let’s discuss if captive insurance may be right for your business.

One of our captive insurance advisors will reach out to you to help you explore your options.
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