A ‘Captive’-ating Insurance Option
What is your familiarity with group captives? If you’re like the vast majority of people, it’s very little. It seems like the magical solution that nobody understands or believes they can access for their business.
Let’s back up a step. A group captive is simply defined as: A company that is wholly owned and controlled by its insured with the primary purpose to insure the risks of its owners.
If that doesn’t clear things up for you, no worries, you’re still in the same boat as almost everyone else out there. A group captive can be a more complex concept to understand; however, when properly explained, you’ll see why best-in-class companies all over the world are trying to find partners to help them implement captive insurance into their business.
The goal of a group captive is to stabilize and control large premiums that have historically been sunk fixed costs within a business.
There are many types of captives out there that can help companies do this. Take your workers’ compensation premium, for example. If you pay $200,000 in premium each year, that would be considered a sunk business cost in the guaranteed market. Yes, you’re protecting the business from risk; however, you have zero ability to return those dollars even if they go unused. A captive takes a large percentage of that premium and helps companies return that as profit for each policy year.
Entrepreneurial, profitable, and well-run companies fit well with this solution as they believe they have (and will continue to) outperform the general marketplace when it comes to safety and loss performance.
Captive insurance provides one of the lowest costs of risk in the market and typically target lines of coverage for workers’ compensation, general liability, auto, and health insurance.
At Holmes Murphy, we not only believe in programs like captives, but we invest and create companies to support them. As our President Den Bishop says, “We sell collective knowledge and experience, and we’re consumed with what’s going to happen in the future.” Due to that belief, we’ve created companies like Innovative Captive Strategies (ICS), ACAP Health, and Creative Risk Solutions (CRS).
What does this mean to you? Well, if you’re interested in finding the lowest cost of risk, captives truly are the best way to accomplish this.
Keep in mind, though, you need to see a true financial snapshot of your business first to see how beneficial a captive would be to you. Too many brokers “talk” about captives as a way to “educate” their client and protect them. But until you’ve actually seen the real numbers, you’ll never know the true impact on your cost of risk.
Beyond the snapshot, would you simply like to learn more about captives? Are you already in a captive and have some advice you’d like to share? Let us know by commenting below. The more Holmes Murphy can be there for our clients, the better we all are.
Published on: 05.02.16