If you’ve been feeling stressed with a traditional insurance program, a captive insurance model may be able to help. Even so, you may not realize the difference between these two methods of insurance. Essentially, one is decided by the insurance company while the other allows you to have some input into your profit, claims, and coverage. If you’re still having a hard time understanding the difference between traditional and captive insurance, you’re not alone. Here’s a summarized version of what you need to know about these two insurance models.
Captive Insurance Program
A captive insurance program refers to a wholly-owned subsidiary insurer that provides an insurance policy for your business. A captive insurance program can decrease your company’s insurance expenses and provide a plan that benefits your business. This program can be added if you feel that your traditional plan doesn’t cover business risks, isn’t as affordable, or comes with tax benefits.
Traditional insurance companies make a profit after coming up with a premium for your company, whereas captive insurance customizes an insurance policy for your business. A traditional insurance company pays expenses, agent fees, and puts away the rest of it as a net profit on their balance sheet. With a captive insurance plan, you make a profit after paying actuarial analysis expenses.
It’s important to manage the total cost of risk if you’re a business owner of any size. With a traditional insurance model, an adjuster is assigned to you for any claims that need to be filled along with problems that may occur along the way. They get to make the decisions regarding coverage within the policies you already have and if your company needs to take your case to court.
A captive insurance arrangement allows you to personally help adjusters figure out you should take lawful action in the case of fraudulent claims. In other words, you take back control over your claims and manage your risk.
Traditional insurance programs designate what isn’t included with the plan you set up while a captive insurance policy is decided among a select group of individuals. You either get absolute authority or a voting right that helps the actuary analyze your company and the price of your risk.