The Opportunity to Control Risk
Since its formation in the 1950s, businesses have discovered the benefits of the unique alternative for risk management called captive insurance. This opportunity appeals to many business leaders with an entrepreneurial drive to control risk. In a captive you become an owner of your own insurance company, which allows you to finance your risk.
Captive insurance is a proven alternative approach to risk management, but it requires complete buy-in, company-wide commitment to safety, and a revolution in thinking. This strategy succeeds when the business is truly devoted to the improvement of their risk management process. While the captive option is designed to save its owners money, its wider appeal is the control it offers. This strategy allows you to potentially turn unused premium investments into profit. Your loss history dictates the level of your premium costs and potential profit — the better your company performs, the lower your costs will be and the higher your potential for profit.
Other key benefits include:
- Controllable fixed costs
- Premiums are more stable
- Potential retention of underwriting profit and investment income
- Reduction of ultimate cost of risk
- Efficient claims management
- Selection of captive partner members
- Improved operations through collective accountability
- Sharing of best practices
- Long-term control over a major expense
- Synergy and networking with member owners
A captive is not meant to be a short-term solution for your risk; it is a dedication to your business’ future.
Captive Ownership
Captives are formed through several ownership options, including Single Parent Captive, Group Captive and Rental Captive. Below is a brief description of the captive options and their requirements.
A Single Parent Captive is an insurance or reinsurance company for its owner. This set-up provides coverage for a single company, generally one that insures risk for its parent and affiliate companies. A Single Parent Captive does not share risk with other unrelated insureds. A business considering this strategy would ideally be owned by shareholder(s), or an affiliate of the insured entities, and have an adequate number of insured entities. The account needs to have financial strength and motive to pre-finance retained risks, even those generally uninsurable by traditional insurance standards.
A Group Captive combines a group of businesses to insure its members through a private insurance company. Members own the right to their underwriting profits and investment income. The individual accounts have premiums ranging from $100,000 to $2,000,000. As a whole, those within group captives embody an entrepreneurial spirit, maintain greater control of the individual risk situations, and sustain financial security. The group captive company coverage often includes:
- Workers Compensation
- Commercial General Liability
- Automobile Liability
A Rental Captive allows multiple programs or insureds to “rent” a space in an existing captive. This provides the company the ability to retain benefits of a large deductible program while offering the budgetary stability of a fully insured program. The rental structure offers more benefits to insureds with premiums greater than $1,000,000. Businesses that choose the Rental Captive generally desire the benefits of a captive without ownership obligations and the ability to finance their risk in an existing captive. These businesses typically are agents, associations, affinity groups or large individual companies looking to purchase unbundled services to benefit their company.
When deciding if captive insurance is right for your business, make sure to consider your conviction on the following topics:
- Desire for control and stability of your insurance costs
- Maintenance of a strong balance sheet
- Demonstration of a good five-year loss history
- Focus on risk management
If the advantages of the captive experience appeal to you and your company, start the conversation by asking a Holmes Murphy broker about the evaluation and qualification process. It could change the course of your company’s future. Turn your risk into reward — call your Holmes Murphy broker today.