If you’re looking for alternative risk transfer options that allow you to step outside of the traditional insurance marketplace to cover some or all of your business’s risk management needs, captive insurance is one of the first options to consider. Not only do captive insurers allow you to access coverage that works comparably to traditional insurance while saving money, but they also provide you with the option to dictate exactly the provisions you need, so you are never over-insure. So, what is a captive insurer? Well, simply put, it’s one you own.
Setting Up a Captive Insurer
There are captive insurance services that make a point of providing streamlined processes for setting up an insurer owned by your business, so you don’t usually have to do the work yourself. Those services also broker agreements between companies with similar needs to create multi-parent captives when requested. This splits the cost of setting up and running the new company, allowing small businesses to access the benefits of captive insurance without assuming the full financial risks themselves.
Whether you use a service or work with your own legal team, the new business needs to have a financial reserve that meets the requirements for an insurer in your state. That means meeting cash reserve requirements, which can be a large expense. Once the new company is in operation, it will need administrative support from employees or contractors and it will need an income to replenish cash reserves, and that income is your premium payment on the policy your new captive writes for you. The costs are typically below market because you only need the business to break even on its costs and payouts, but they do represent a regular expense.
Changing Your Policy with a Captive
Changing your insurance policy with your captive insurer is a lot like changing it through a regular insurance review. The big difference is that the insurance professionals who write the new policy will be working for you, so you can get exactly the coverage you want, within your budget for premiums. It’s not just a matter of saving money, for some companies it’s a matter of affordable access to more valuable policies.