Business owners protect their companies against financial loss with various forms of insurance. Captive insurance solutions provide a prudent alternative to traditional options.
Advantages of Captives
In a captive program, insureds put their capital at risk instead of working within the regulated commercial insurance marketplace. However, this option provides more incentives than an entirely self-funded plan, such as:
- Reduced operating costs
- Coverage unique to the company’s risks
- Reinsurance ability
- Investment income to fund potential claims and losses
- Increased control over claims
- Flexible funding and underwriting
Creating a Captive
Often, available policies are expensive or poorly matched to a business’s needs. A captive insurer provides coverage for these risks tailored to fit the organization’s requirements.
Increased Cash Flow
Typical insurance arrangements require an owner to pay premiums to a third-party insurance company. The premium amounts paid are higher than the expected losses, making captive insurance solutions a logical alternative.
Funds to Cover Future Losses
This individualized coverage also allows a business to build a fund for future claims with pretax premium payments and underwriting investment. With a captive, these funds are deductible, as they are considered an insurance premium.
With this type of plan, an owner can indirectly evaluate risks, write policies, set premiums, and decide what to do with funds. Captive insurance companies provide risk management allowing companies to protect themselves financially while having more control over how they are insured.