8 Reasons Why You Should Form a Captive

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!

 

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