What You Need to Know About Captive Insurance

The future can be uncertain at most times. One day, everything is well. The next thing you know, you got involved in an accident. Or perhaps you learned that you have an incurable medical condition and was given months to live. Or you learned that your business is about to go bankrupt and is threatening to shut down.

That is why it can be a good investment to get insurance to ensure your future. There are insurance companies that serve individuals, groups of individuals, and even business entities. For the latter, there are parent companies that create a separate insurance company to their smaller business entities. A captive insurance lawyer may be needed in creating a captive insurance company.

What is a captive insurance company?

This type of insurance company usually offers insurance services for the parent company or its group of companies. A captive insurance company is usually formed if the parent company is not able to find an insurance company that would protect from various business risks.

The formation of a captive insurance company is also more likely if the paid premiums create more tax savings when paid to a captive insurer. It can also be possible that the captive insurance company offers more affordable and more comprehensive coverage that can benefit the parent company in terms of business risk.

The concept of captive insurance companies has been around since the 1950s. These companies are regulated by most states like any other insurance companies. That said, establishing captive insurance in the US can be expensive. To save on costs, a lot of companies create it elsewhere, remotely, out of the US.

Types of captive insurance companies

There are many types of captive insurance companies, which are the following.

  • Single-parent captives. Also called pure captives, this one is usually owned by a single company.
  • Group captives. Created by groups of companies with similar businesses and loss exposures
  • Association captives. Usually established by professional associations that aim to cater to similar industries or businesses.
  • Rent-a-captive. As the name suggested, it is rented by companies not related to the captive insurance company at a specific cost.
  • Micro-captive. A small captive insurance company that has $2.3 million or below annual written premium.

Why companies rely on captive insurance

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There are reasons a lot of companies, even those included in the Fortune 500 list, establish a captive insurance company. Among these include the following:

  • To acquire stable pricing of insurance
  • To be able to save money from specific risk management expenses
  • To be able to offer and avail a wider and broader insurance coverage
  • To be able to secure insurance coverage that is not usually available in most insurance providers
  • To be able to have better control over the captive insurance‚Äôs cash flow

A lot of captive insurance companies are established and operated under a domicile. Domicile refers to a location wherein the captive operates. Among common remote domiciles include the Cayman Islands, Barbados, Bermuda, and Ireland, among a few. However, there are some captive insurance-friendly US states such as Utah, Hawaii, and North Carolina.

These are some things you need to know about captive insurance companies. Before creating one, make sure to do your own research first so it can meet your business goals.

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