When it comes to running a successful business, there are many responsibilities and decisions that need to be made. One big decision most business owners find themselves facing is what to do about insurance, especially in the property and casualty spheres. After all, with the cost of medical procedures, general wellness, and risk protection being so high, it's no wonder this can be a deal breaker for a company. Therefore, it’s an important topic to be sure of.
Thankfully, if your business is a good candidate for group captive insurance, this will likely be the most advantageous option and provide you with many benefits when compared with traditional insurance options. Read on to learn more about group captive insurance and what it can provide your business:
Group captive insurance is so named because businesses actually create a business structure through which insurance is provided. The business being created to offer this insurance is subsidiary to the parent company, meaning they are “captive,” hence the name. The subsidiary’s entire role is to insure the risk of the companies and the related parties who own them. They look much like other insurance companies, though, other than the way they are formed.
Another way to explain this type of insurance is multiple businesses owning one insurance subsidiary. The parent businesses or those who come together to form a captive insurance company are non-related entities (they don’t have to be but can be in the same field), yet they own and control the insurance subsidiary together.
As with any type of insurance, you want to know exactly how a specific policy can benefit your business. This makes sense. Thankfully, there are many advantages and overall benefits related to group captive insurance, a few of which are explained below:
With a group captive insurance plan, you as a business will have more control over your insurance coverage overall. You can negotiate coverage terms and offer specialized protections. This is especially true when considering homogenous group captives, meaning they are made up of businesses either in the exact same or similar fields.
The premiums assessed for group captive insurance plans are based on a business's particular risk profile and claim history. This differs from traditional commercial insurance plans which are usually largely influenced by industry trends. Limiting premium calculations to an individual business’s profile and history is a much fairer way to set the price. It also protects businesses from undue market trends that only tend to raise rates.
Another benefit of a group captive insurance setup is the fact that you as a business can better control your total costs of risk and risk financing. The total cost of risk is decreased when a business reduces the number of claims since premiums are largely based on claims and subsidiaries’ remaining profits from unpaid premiums. Consequently, risk financing is more manageable with group captive insurance because the insurance itself is so customizable.
The financial incentive to reduce rates causes businesses to have a heightened awareness of safety. One survey even found that companies with captive insurance plans experienced 48% fewer fatalities and 22% fewer worker’s compensation claims when compared to companies with traditional insurance plans. In other words, you as an employer and your employees will benefit from a reduced accident rate, which is encouraged by captive plans.
Owning and operating your own subsidiary will give your business complete transparency in how insurance premiums are managed. Premiums, overhead, claims payments and the like are all readily available for businesses to review at any time.
Last, but certainly not least, businesses can benefit from group captive insurance by underwriting profits through the investment income that the subsidiary generates. This combined with the cost savings they will enjoy makes captive insurance plans quite financially beneficial for many businesses.
Determining if a business is a good fit for group captive insurance is something that must be addressed on a case-by-case basis and take into account a business’s risk profile, coverage, and premium needs. However, some general factors make businesses good candidates for this type of insurance coverage. They are as follows:
To sum up, if your business is financially stable and you find yourself consistently paying high insurance premiums when considering your claims, you need to at least consider if group captive insurance could be a good move for your brand. The evaluation process to determine your benefit from this type of protection can be extensive and complex. Therefore, it’s important to seek the help of a highly experienced insurance professional who understands captives well to make a proper evaluation. It’s also important to consider the move to group captive insurance as one that is long-term as you can’t simply change insurance companies once this setup has been completed. When you meet with a professional consultant, they can take a good look at your business and help you make an informed decision about how best to insure your business.
While your coverages will vary, the following are some aspects that are usually part of captive plans:
If you think your business might be a good fit for group property and casualty captive insurance, take the online assessment at Winter-Dent. Our assessment will provide an initial evaluation and explain how group captives could benefit your business. Contact us today to learn more.