Everything about a business’s premiums and insurance coverage needs as well as its particular risk profile should be evaluated on a case-by-case basis. After all, no two businesses nor their risk or costs will be exactly the same. However, there are some generalities that make businesses good candidates for group captives or more fitting candidates for this type of coverage. The following are some indicators that your business might be a good fit for group captives:
- Your business pays combined property and casualty insurance premiums of at least $125,000. This can include general liability, workers’ compensation premiums, and commercial auto coverage. This means you are paying out a great deal of money on protecting your business. Chances are, opting for a group captive over traditional options could save your company money.
- Speaking of reduced costs, a good fit for a group captive option is a company that wants to reduce insurance costs and better manage risk financing through an alternative solution.
- Your company prefers insurance premiums to be based on your business’s actual losses rather than industry averages. This is especially true if your business has a lower than industry average record of loss. After all, it’s not really fair for your safe business to be punished by industry trends. If you have worked hard to create a safe working environment that presents less risk of claims being filed, you should benefit from this in terms of your insurance costs.
- Your business has at least a five-year history of incurred claims consistently lower than 50% of the premiums paid, across all coverages. This means that overall when comparing what you have paid versus what you have been paid via claims, your business costs less than 50% of what you earned through claims.
- Your business commits to taking proactive measures that will improve overall safety and reduce accident rates. As mentioned above, if your business works hard to create a safe environment, you should benefit from this and not have to pay the high rates associated with insurance industry trends.
In short, businesses that are financially stable and consistently pay high insurance premiums relative to the claims that are paid out by their insurer should consider whether group property and casualty captive insurance is right for them. This evaluation is somewhat complex, so businesses should work closely with a knowledgeable insurance professional who specializes in captives when making this evaluation like those at Winter-Dent.
What is A Group Captive?
Captives are a type of insurance defined by the structure in which it is constructed. A group of businesses creates a subsidiary insurance company that in turn provides insurance. This subsidiary insurance is a separate business entity but is still owned by the parent businesses. Therefore, the insurance company is “captive” to the businesses that oversee and own it. Although they differ in how they are formed, they operate much like any other insurance company once they are established.
Additional Reasons That Group Captives Can be a Good Idea
There are many businesses that seem prime candidates for this type of insurance. They have high or unique risk profiles and the commercial or traditional options for them are either unaffordable or unavailable. Another notable benefit of group captives is the fact that at the end of the year, any premiums that haven’t been used to pay for claims can be retained as profits by the subsidiary, which is, of course, owned by the parent companies. This can motivate businesses to avoid risks and ensure a safe working environment to reduce the likelihood that claims have to be filed.
Homogenous Group Captive vs. Heterogenous Group Captive
There are several types of captives subsidiaries available, but only two primary types of group captives. This includes either homogeneous or heterogeneous group captives. Group property and casualty captives can be defined as homogenous if the insuring subsidiary is owned by businesses that fall within the same overarching industry. This is especially helpful for businesses that require a specific type of coverage that might not be applicable in other fields.
When it comes to the heterogeneous group captives, this means that the businesses that own the insuring subsidiary are not businesses that are overly similar or even in the same field. This can be a helpful option when risk needs to be spread out throughout various industries and it can also be an advantageous way to manage industry-related insurance cycles.
What is Covered Under A Group Captive?
The specific types of coverage or protections in any group captive will vary. However, they generally include aspects of the following elements:
General Liability Coverage: This protects your company against false advertising claims, defamation lawsuits, and slip-and-fall accidents.
Auto Physical Damage and Auto Liability Coverage: This aspect of coverage includes protection against injuries and property damage that is caused by employees operating vehicles. It also includes protection against damage to company-owned vehicles.
Workers’ Compensation Coverage: Most group captive plans will protect against workplace illnesses and injuries sustained by employees on the job.
Specialized Coverage: This could include special coverages for particular risks necessary or needed for your business.
Make The Call
Businesses should consider joining a group captive only as a long-term decision. Setting up and creating a captive group is not something that should be taken lightly. After going through the complicated process, you will not want to just change insurance companies. Therefore, it’s important to speak to our experts at Winter-Dent who can help you determine if the captive group option is or is not a good fit for your business. Contact us today to learn more about this type of insurance and what it could possibly do for your brand.