INTRODUCTION TO CAPTIVES

 

 

TURNING PREMIUMS INTO PROFITS

Navigating Captives

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When you continually pay more premiums to insurance companies than they pay out on your behalf, where does your excess money go?

Your efforts and focus on safety, the very attributes that have made you attractive to insurance companies, are allowing those same insurance companies to make an underwriting profit off your business. In essence, that underwriting profit is excess premiums, and it allows the insurance company to take on the risks and pay the claims of businesses that are not as focused as you are. Plus, your excess premiums go to benefit their shareholders in the form of insurance company profits.

Then you realize your situation has gotten worse when the insurance industry experiences a "hard market," a time period when the insurance industry seeks to increase overall rates due to inadequately charging companies with poor claims experience enough premium.  When better performing companies like yours cannot offset the losses of poorer performing businesses, the insurance companies still need to be profitable for their shareholders, so they must increase everyone's rates - including yours!

In an effort to reduce their Total Cost of Risk, and gain more control over their own situation, you can see why businesses continue to turn to alternative risk financing market, particularly captives.  Participating in a captive gives you opportunity to be rewarded by receiving the underwriting profit of your efforts, as well as any potential investment income.  Rather than an insurance company and its shareholders receiving the benefits of your better results, you do!

Captives are not a new concept; they have been around for over 100 years.  A captive insurance company is a separate entity formed specifically to manage the risks of its parent company.  Single Parent Captives, where a captive is formed to protect its owner/parent company, have long been used by Fortune 500 companies to manage their diverse risk portfolios; but the use of captives did not stop there. Liked minded business owners grouped together to form their own group captives so that they too could benefit from the same beneficial advantages of a captive insurance program.

From around 1,000 captives in 1980, there are now over 7,000, according to a September 2014 report by Conning Research & Consulting.  In fact, there has been more than a 35% increase in captives in the past 10 years as business owners become more sophisticated and demand better use of their capital. As a result, more and more businesses have turned to captives. And with that growth, the availability of middle market companies to access such programs has grown immensely.

 

Is it time for you to break that costly cycle?

If you are paying over $100,000 annually in workers’ compensation, general liability, and auto insurance premiums combined, you can break this costly cycle and gain more control over your insurance costs.

Alternative risk financing is when a business does not purchase traditional guaranteed cost insurance policies, but instead purchases insurance where they take on some risk to get potential rewards.  For clarification, there is more insurance premiums invested by businesses in the alternative risk financing market than you realize, with the use of Group Captives being the most popular of the alternative risk financing programs being used.

“Over 90 percent of Fortune 1000 companies and many successful mid-market companies have captives,” stated Lance McNeel, Capstone’s Director of Insurance. “An estimated 50 percent of all property and casualty premiums are written through captives.” If you remain in the traditional insurance world, you will shortly be in the minority, and be at a competitive disadvantage as compared to those that are insured in the captive world.

From this website, you will learn more about captives and the benefits of them. Just one of many benefits you learn about is how captives will provide you with the ability to have your premiums determined by the quality and results of your operations versus the overall average rates used in the insurance industry uses.  At this point, you might already be asking yourself, is a captive right for me?

SECTION 1

INTRODUCTION TO CAPTIVES

 

SECTION 2

CAPTIVE BASICS

 

SECTION 3

BENEFITS OF GROUP CAPTIVES

 

SECTION 4

TYPES OF CAPTIVES

 

SECTION 5

IS A CAPTIVE RIGHT FOR ME?

 

SECTION 6

HOW TO JOIN A CAPTIVE

 

SECTION 7

831(b) CAPTIVES

 

SECTION 8

HEALTH INSURANCE CAPTIVES

 

SECTION 9

TURNING PREMIUMS INTO PROFITS BOOK

Get in Touch

 

 

David Leng, CWCA,

CPCU, CIC, CBWA, CRM

724-863-3420 x 3329

dleng@duncangrp.com

 

John M. Duncan, Jr

CIC, CWCA

724-863-3420 x 3311

jduncan@duncangrp.com

 

 

© 2017 Premium Reduction Center, powered by Duncan Financial Group     •David Leng     •724-978-2139     •dleng@duncangrp.com