Captive insurance is becoming more and more common. In fact, more than 90 percent of Fortune 1000 companies and countless middle market businesses now have captives. In addition, approximately half of all property and casualty premiums written are written through captives. If your business is interested in setting up a captive, you may be wondering where to start. The captive insurance set-up process involves several important steps that often require the expertise of an insurance consultant. Learn more about what captive insurance companies do and how to set up a captive insurance company for your own business
What Captive Insurance Companies Do
A captive insurer is an insurance company that is owned and controlled by its insureds. The main goal of captive insurance is to insure the risks of its owners and benefit from the underwriting profits.
The insured members of a captive choose to invest their company’s own capital when creating their insurance company. They also agree to work outside of the commercial insurance marketplace in order to achieve their own cost containment and risk financing objectives. Traditional health insurance can be very costly, but captive insurance allows businesses to gain greater control over their finances by eliminating certain expenses and taking advantage of certain tax perks.
Starting a captive can be an excellent decision for certain businesses. A captive may be right for your business if you can access the financing needed based on your risks, or if you want to gain more control over your risk management programs. As a captive owner, you can benefit from pricing stability and increased cash flow. You can also enjoy improved control over your insurance, including control over loss control, safety and claims administration.
Steps To Setting Up A Captive Insurance Company
Setting up a captive typically involves the following basic steps:
1. Design The Type & Structure Of The Captive
There are many different types of captives which can be structured in various ways to fit the unique needs of your business. The first step in setting up captive insurance is to determine the captive’s type and structure. Some of the most common types of captives include single-parent captives, association captives, risk-retention groups (RRG), and agency captives. Choosing the right captive for your business is crucial to ensure that you are able to properly manage insurance claims without putting your business at risk. When choosing a captive type and structure, it is important to consider claims management and contractual risk transfer.
2. Perform A Study On Feasibility & Risk
The next step in setting up a captive insurance company involves performing a study on feasibility and risk. Much like the underwriting process with a traditional fully insured carrier, a study on feasibility and risk can help ensure that the risks you are taking are acceptable. A feasibility study typically begins by stating the purpose or scope of the project, followed by a more in-depth study of whether or not creating a captive will meet the expectations of the business.
3. Choose A Domicile & Partner
Once a feasibility and risk study has been performed and the goals of your business are made clear, it is time to choose a domicile. Currently, there are more than 70 captive domiciles in the world. While not every domicile may be a good option for your business, you will likely find one that meets your needs. When looking for a domicile, consider elements like access, cost, support services, and political stability. After selecting a domicile, you will need to choose your partners. This will likely include a U.S. consultant, risk-sharing entity, domicile manager, banker, accountant, and the actuary. Choosing the right consultant and captive advisor can make this process an easy transition.
4. The Application Process
The final step in the captive set up process is the submission of your application. Your chosen consultant and captive manager can help with the gathering of data and completing the application process. Having the appropriate guidance can help your company become approved in time for your policy effective date.
Contact An Experienced PEO Consulting Firm
When businesses find commercial insurance to be unavailable or overpriced, they may turn to captive insurance companies. A captive can be effective in reducing the risks of expenses relating to large deductibles, gaps in existing coverage, remote risk expenses and similar costs. Setting up a captive insurance company should be done with the right professionals. For this reason, it is important to speak with an experienced insurance agency. Contact the PEO consultants at BenefitCorp today to learn more about setting up captive insurance by calling 972.737.7875 or by requesting a quote online.