The typical consumer will be put off by the phrase “rent a captive“. It can leave the consumer mislead and a confused. To an insurance industry expert, the term is far from confusing and is actually a niche market of insurance coverage that more than a handful would like to be involved in. However,to the average person, terms concerning “captives” and “rent a captive”are terribly impenetrable But with a little investigation and defining the necessary terms, one can formulate a business strategy that can be profitable.
Before we can go much farther, we must define what a captive is. In the insurance business, a captive is an insurance company set up with the express purpose of underwriting risks comping from the parent group or groups. Insurance companies use such a thing as a way to manage risk when a business wants to build its own insurance company. The so-called captive becomes a subsidiary company and this allows the company to pay its dues in an orderly fashion.
A rent a captive, on the other hand, is a company that will rent out its captive company, while protecting itself from losses in the same company. This is used when managing situations that are not substantial enough to justify starting your own captive. It increases the exposed risk of the parent companies but at the same time increases revenue.
An added benefit with these schemes is how claims are handled. When a third party is involved, it can become incredibly pricey. But when the one doing the insuring is a captive, management takes care of it, and thus reduces the cost and time spent fussing with bureaucracy.
With costs increasing, it is only a matter of time until more and more companies make use of this scheme.