Your business journey is unique, and your insurance journey can be too.
The most common insurance programs consist of you paying a highly-rated carrier a premium every year to provide a traditional insurance policy. While this works for many companies and may work well for yours, another option could be a better fit.
Captive insurance programs still follow the guidelines of paying a premium to receive an insurance policy, but there are many differences and potential benefits. A captive program is led by the companies participating, and these members share in the underwriting, claims, and investment process.
Benefits of a captive program
Group captives are an opportunity for companies with superior loss experience to join with other high-performing companies to afford themselves more control over their insurance program. Being a captive member, you will see a more direct benefit from your loss performance through the return of underwriting profit and stabilization of pricing.
As a captive member, there is indeed a financial risk, as your money is used to insure the group. However, premiums are based on all members’ performance, with profits returned to the members. This form of self-insurance keeps the members more engaged and invested when it comes to recruiting new members.
New members will apply to the group like a traditional carrier by providing prior insurance history, company details, risk information, loss runs, financial situation, and more. Current members will then be a part of evaluating and approving this new risk. Because the members are a crucial part of the underwriting process, the limitations of traditional carriers are not present and only those accounts that best fit the group are ultimately invited to join the captive.
What we have seen in the captive marketplace
While risk is often predictable and preventable, that isn’t always the case. We have seen several examples of companies utilizing captives to manage unique and emerging risks.
One example comes from a commercial property manager. They used a broad form business interruption policy to cover the additional costs of maintenance and operation resulting from high vacancy rates stemming from the economic crisis of 2008. The organization used historical average costs as a benchmark and structured a captive policy to provide coverage if costs exceeded historical averages by more than 20% for more than 90 days.
Captives have also been used for years to fund the cost of defending and investigating specific regulatory actions. This can include employment-related actions, private suits alleging regulatory violations (e.g., ADA compliance, consumer protection, etc.), and environmental actions.
While these are only some of the ways captives can be the right solution, it’s important to understand if and how a captive could potentially benefit your organization specifically.
Would a captive fit your unique or emerging risks?
The insurance market has encouraged more companies to review and transition into captive carriers. Using a captive when you need additional excess coverage that is no longer available through traditional markets has become common. A case such as this could meet a specific need your organization may otherwise have trouble fulfilling.
For instance, abuse and molestation coverage, primarily required by businesses that focus their services on children and other vulnerable populations, has become hard to find in the traditional marketplace. It is usually severely limited and quite costly if you can find it. Beyond this example—even if you don’t fit into a unique group with specific needs—captives can work for everyone. Wanting flexibility, control, and involvement in your insurance is a good enough reason to explore the captive marketplace.
With more than 400 colleagues managing nearly 20% of the world’s captives, MMA’s Captive Advisory Practice for Business Insurance is your trusted partner in the captive space. Let us help you determine if captive insurance is the right solution for your organization.
