Many business owners have formed a captive insurance company and realized significant benefits. However, the decision whether to form a captive is often clouded by misconceptions and a failure to recognize the advantages of owning your own insurance company. A captive insurance company is an excellent risk management tool. In addition, it can be a profitable business and can offer significant benefits to the owner(s) and insured(s).
Here are 8 reasons to form a captive insurance company:
1. Coverage Control: A captive insurance company enables a business owner to better manage insurance risk. By establishing a captive, a business owner is able to tailor coverage to the insurance risks that are specific to the business. In addition, the business is not limited to coverages that a commercial insurer is willing to offer.
2. Uninsurable Risks: A captive insurance company can provide coverage for insurance risks that are unavailable or prohibitively expensive in the commercial market.
3. Cost Reduction: A captive insurance company can reduce insurance expenses by eliminating commercial insurance company costs, such as commissions, overhead expenses, and profits.
4. Underwriting Profits: A captive insurance company can be a source of profit. Premiums paid to the captive in excess of the claims paid by the captive are retained by the captive as net profit.
5. Rate Control: A captive insurance company provides greater control over a business’s insurance costs. Premiums paid to a captive are based on the claims experience of the associated business.
6. Reinsurance Access: A captive insurance company can provide access to the reinsurance market, which may result in better coverage at a lower cost, when compared to the commercial insurance market.
7. Investment Income: By forming a captive insurance company, a business owner can control the investment of unearned premiums and reserves, instead of paying these amounts to an unrelated commercial insurance company.
8. Claims Control: By forming a captive insurance company, a business owner gains control over the claims adjudication and payment process, which can result in a more efficient and expeditious process.
If you think that a captive might be right for your clients, contact us today!