Captive Insurance

Captive Insurance programs are an alternate form of insurance established to help individual companies and organizations (or groups of companies and organizations) benefit from advantages in risk management, insurance savings, wealth transfer, and taxes. This alternative form of risk transfer can be used by organizations and companies of all sizes and industries.

How Does a Captive Work?

The individual entity or group of entities may decide to form their own insurance company, called a captive insurer, to retain some of their own risk. The captive insurer is an alternative to purchasing coverage through a normal third-party insurance carrier. It is an attractive option for companies and organizations who have limited options for securing insurance coverage in the standard insurance market or find the pricing of available options to be unfeasible. In cases where various companies or organizations group together to form a captive insurer, the financial benefits of pooling their combined risk can be even greater.

Benefits of Captives:

• Reduced cost of risk
• Cash flow benefits
• Accessing coverage not available from the standard commercial insurance market
• Direct access to the international market of reinsurers
• Increased purchasing / bargaining power when participating in a group captive
• Centralize retained losses spread through subsidiaries
• Income tax cash flow advantages as premiums paid can be tax deductible

Are Captives Right For Your Organization?

Captive insurance programs can be valuable risk management tools but are not the best approach for every organization. For some companies, they are not feasible and could ultimately cost more than traditional insurance. If your business is considering a captive structure, you must first identify and outline the financial and business goals and objectives of this type of program. Your organization must also be financially stable, have a good loss history, and demonstrate the ability to pay for claims and potential future losses. Captive insurance programs also take a dedicated amount of time to set up and operate so you must make sure you have the resources available to implement it successfully.

Feasibility Study:

If you are interested in pursuing a captive insurance program, please reach out to Simpson & McCrady to discuss the feasibility of this type of structure. Although we do not set up captive insurance programs directly through our agency, we have partnered with other firms who can assist with this process. Along with these partners, we can help guide your organization in determining if the financial implications and time needed are worth moving forward. Our partners can also assist with selecting the domicile of the captive insurer, selecting the elements needed to successfully implement the program, and provide guidance on best practices for operating the captive once it has been established.

Have any questions or want to discuss captives in more detail? Let’s chat!