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Captive Insurance
A Risk Management Solution for Businesses

The Concept
 

Captive insurance is a tool to manage the insurance risks of operating a business, while providing the owners of the business substantial benefits beyond the purchase of commercial insurance. Captive insurance is obtained through a captive insurance company (“captive”), which is an insurance company created for the primary purpose of insuring the risks of an operating business and its affiliated companies.
 

Establishing a captive allows the operating business to take control of its risk management by allowing it to insure risks for which coverage may not be available in the commercial market or may be prohibitively expensive. Captive insurance is often less expensive than commercial insurance, because it can be tailored to the needs of the operating business. In addition, because the captive and the operating business generally share the same or a related owner, the captive can be a profit center, instead of a drain on resources. A captive may also offer favorable tax advantages in the areas of wealth preservation and transfer.
 

Captive insurance is a proven strategy for risk management that large corporations have employed for years. Many Fortune 500 companies have captives, and several well-known insurance companies got their start as captives. Because of recent developments in the law, captive insurance has become a strategy that small to mid-sized businesses can employ. Our captive insurance consulting services are designed to guide businesses through the process of establishing and managing a captive from start to finish.

What kind of insurance

can a Captive provide?
 

A Captive can provide insurance for any

insurable risk. Typically, a Captive will offer insurance that is either not available in the commercial market or prohibitively expensive in the commercial market. The types of risk that a Captive can insure include, but are not limited to:

  • General Liability

  • Administrative Actions

  • Business Income Protection

  • Computer Operations and Data

  • Product & Services Warranty

  • Litigation Expense

  • Contract Cancellation

  • Loss of Key Customer

  • Loss of Key Supplier

  • Loss of Key Employee

  • Accounts Receivable

  • Intellectual Property

  • Mold Remediation

  • Earthquake & Volcanos

  • Body-Part Insurance

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Benefits of Captive Insurance

 

Filling the Gaps
Captive insurance can replace or supplement traditional forms of insurance available in the commercial market. Commercial insurance may not provide adequate coverage for certain types of risks. In fact, the commercial market may not even offer the types of insurance that a particular business requires. In addition, a captive can fill gaps that are built into commercial insurance, such as deductibles, policy exclusions and policy limits.

 

Risk Transfer
A captive is an insurance company, and, like any insurance company, it provides protection against risks that a business faces on a daily basis. While some of these risks may be remote, they could have catastrophic consequences if they were to occur. Captive insurance allows a business to transfer these risks to an insurance company, so it no longer is forced to self-insure these risks.

 

Cost Efficiency
Captive insurance may be more cost-effective than commercial insurance. Because the primary purpose of captive insurance is to insure the risks of an operating business, a captive can tailor its coverage to the needs of the operating business...Costs may be further reduced, because a captive does not have many of the expenses faced by a commercial insurance company...Another cost-efficiency may be reinsurance. Reinsurance is insurance for insurance companies and is generally not available to the general public. An insurance company can reduce its risk exposure through reinsurance, thereby lowering its costs. Because a captive may have access to the reinsurance market, it can reduce its risk exposure and pass on the savings to the operating business.

 

Profitability
A captive is an independent business, separate and apart from its related operating business, and like any business, it is in business to make a profit. To the extent that premiums paid to the captive exceed claims paid by the captive, the premiums paid by the operating business go to the bottom line of the captive.

 

Estate Planning and Asset Protection
A captive can offer the same estate planning and asset protection opportunities as any business. If the owners of the captive are the children of the owner of the operating business, then assets can pass from one generation to the next, often without gift tax considerations.

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