So you’ve heard about captive insurance. Maybe a friend, CPA, peer, or other has told you that for larger privately owned middle market companies a captive is a great way to transfer risk over traditional insurance.
In this video and post, I want to go over some broad topics and thoughts on Captives that I hope you’ll find informative.
The first concept to wrap your mind around is that if you’re thinking of forming a captive is that you’ll be in the insurance business.
You are putting up your capital at risk.
While this may sound somewhat scary, I like to start with this gut-check first because if you can’t stomach paying for your own claims out of pocket then there’s no sense in talking about saving money or customizing the protection you can get to do when you own a captive.
If you can wrap your mind around this concept of putting your capital at risk, then let’s keep going.
The benefits of owning a captive insurance include:
- Potentially saving money over commercial insurance, more accurately you get to harvest your profits for good claims performance rather than allowing your insurer to harvest those profits.
- You can customize insurance protection for certain unique risks that you might not have been able to buy insurance for in the past.
- You manage claims. That means you have a more direct impact and outcome over your claims. Instead of your claim being one of hundreds on your insurance company’s adjuster’s desk that may or may not get proper attention, you know what claims are in the works and control the outcomes for lower costs.
- Finally, you access the reinsurance marketplace like your current commercial insurer does to hedge your risks. And, you go directly to the reinsurance marketplace at a wholesale level, meaning you’re not paying a markup to your insurance company for market access.
In my mind, the biggest benefit of owning a captive is putting the underwriting profit your account generates back in your pocket.
You may be asking – What is underwriting profit?
Underwriting profit is the amount of money left from your premium payments after claims have been paid, and the costs associated with owning a captive have been paid.
The fewer claims you have the greater the underwriting profit you’ll create.
Want to explore this further?
You can download the e-book we’ve created on this subject found on the captive section of our website, or you can reach out directly to me.