Benefits Of Captive Insurance For Smaller Businesses

You may have heard the term “captive insurance” before, but what does it mean? How does captive insurance differ from your current insurance and what are the benefits? 

Traditionally captive insurance was more readily available to larger companies only, but that’s beginning to change. Let’s learn how captive insurance may benefit your company.

What is captive insurance?

Captive insurance is a form of “self insurance”, and an option for those interested in having a stake in the insurance company itself. Generally speaking, captive insurance options are companies formed and controlled by their insureds. Those referred to as pure captives are completely controlled by members, while sponsored captives may have external owners. 

Pure captive insurance may be a single parent captive, if only one company is invested, or a group captive, if multiple companies have come together to form the captive. Group captives will often only be made up of businesses within the same industry or risk groups. This is called an industrial insured group-owned captive.  

How is captive insurance different from traditional insurance options?

On the traditional marketplace, you are paying to use a commercial insurance company’s money, but with captive insurance, you instead invest your own company resources and capital. This means that for smaller claims, you save money as your company retains the amount you would normally be paying to the insurer. 

Overall, captive insurance provides significant benefits like higher capital, greater control and broader coverage, and smaller businesses can take advantage of this option.

What are the benefits of captive insurance? 

Broader coverage

Traditional insurance contracts often don’t provide broad enough coverage, but captive insurance can help here. You can limit the amount of exclusions in the insurance policy for a broader insurance package that truly covers your business’s needs.

More control over the insurance process

When you join into a group captive insurance solution, you have the opportunity to be highly involved in the behind the scenes of your insurance policy. No one knows better than you the needs and risks of your industry, and with captive insurance, you are able to vote alongside other members as to the internal structure of the insurance.

Invest your insurance premiums

With captive insurance, instead of just paying your premiums, you can actually invest that money and start earning additional revenue. So whether you end up needing your premiums for claims or not, the premiums will be earning you returns in the background. 

Investing your premiums is actually how most commercial insurance companies gain a good portion of their profits. WIth captive insurance, you can turn that around and be the one earning returns, instead. 

Greater incentives to have better loss history

Captives are usually modeled to reward a better risk environment. This means more dividends and better payouts to you from the captive insurer as long as your company maintains a good level of risk management. 

And these benefits can move down to your employees, as better payouts to your company mean higher salaries and benefits to your managers, supervisors and employees, allowing your workers to also reap the benefits of a captive insurance program.

Is captive insurance right for my business?

Captive insurance options aren’t just for Fortune 500 companies. Smaller businesses can get in on this unique insurance solution, as well, and use captive insurance as a way to finally take greater control over insurance policies and earn some additional capital in the process. For more details about how a captive insurance program could benefit your specific business, contact Callahan and Rice for more personalized advice.

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