Captive insurance can provide a host of benefits to businesses. Companies that use captives are better equipped to evaluate the risks of subsidiaries, set premiums, and policies. They can also decide whether to invest unused funds for future claim payouts or return them in the form of dividends.
Associated Costs With Captive Insurance
Setting up a captive insurance company is not difficult. Proper insurance consulting ensures that, if done correctly, captive insurance can save businesses a significant amount of money over time.
For many businesses, the use of a captive can be used as a tool to protect against the unexpected upswings and downturns that can occur in a commercial market. Captive insurance allows these businesses to bypass a variety of problems while giving them more control over their finances.
Start-Up Funds
There are various methods of funding available and determining the type of captive that would be the best fit for your company is a great place to start. Depending on the size of a company, the start-up capital required for a captive arrangement can vary. There are various methods by which funding can be satisfied. It is important to speak to a qualified consultant to determine the best captive arrangement and financial contribution for your company.
Taxes, Boards, and Bureaus
For a captive program, taxes, boards, and bureaus typically account for approximately 2 to 4 percent of costs. This is a relatively small percentage when comparing the costs of having a fully insured insurance plan. These fees and costs can easily be directed and controlled at the captive ownership level. Administrative bureaus further aid in the management of captive insurance plans and claims containment, which helps keep costs low. The captive owner is involved every step of the way so there are no surprise fees or hidden costs.
Managing Claims
Generally, 80% of claims occur at the small claims level. Thoughtful and careful direction of care can easily prevent unnecessary claims from occurring. What makes captive insurance companies so popular is that captive owners have far more control over how claims are handled and how care is directed. A captive insurance company can choose to resolve a claim before it has the chance to become larger and more costly. As a general rule of thumb, claims become more expensive the longer that they are left open. These types of decisions can be cost-saving to captives. Claims administration typically accounts for 2 percent of a captive program. Experienced claims managers are skilled at directing care and handling claims with a concierge, white-glove approach.
Controlling Risk
Measuring and evaluating risks involves a special skill-set and knowledge of risk control in captives. While all losses are already secured, it is important to show regulators, reinsurers, shareholders, and policyholders that you are taking the necessary steps to control losses. It is also important to remember that every captive insurance company faces certain risks regardless of how large the business is and how much money is invested. Reinsurance is part of risk management to protect captive owners from excessive financial responsibility. Speaking with an insurance consultant knowledgeable in captive insurance can help you minimize these risks and the cost of your insurance.
Call the Experts in Minimizing Captive Insurance Costs
Businesses establish captive insurance companies for a wide range of reasons. When done correctly, a captive insurance company can help reduce costs, improve group purchasing power, and centralize the control of insurance. Speaking with the right consultant is important when deciding if the risks and investment involved are worth it for your business.
While captives will incur certain operational and administrative costs, they will typically be much lower than the expenses incurred with commercial insurers. For more information about the costs involved in captive insurance, contact the knowledgeable advisors at BenefitCorp.