Captive insurance offers an alternative approach to risk management and insurance, and contains significant advantages that every business should be aware of.
What is a Captive?
In a nutshell, a captive is a closely held insurance company created for self-insurance purposes. It is a very flexible tool which can be used for risk protection of a single company, or the whole group.
Who needs a captive? - Almost any business can consider some form of captive insurance as a potential risk management tool, but if you can tick any of the following boxes from the checklist, it is likely you’ll be surprised that you haven’t implemented it sooner.
Captive feasibility checklist
Your local insurance company does not satisfy your service requirements and has proved to be incompetent to indemnify the losses in a timely manner.
Your business is unique in nature and existing insurance solutions prove to be insufficient to cover your risks, or too expensive.
You have a low loss ratio.
Over a certain period, your annual premium expenses exceed received insurance payments.
1. Contribution to corporate risk management. Implementation of a Captive solution improves the whole philosophy of risk management: the fewer losses occur, the more profit accumulates inside a Captive.
2. You are in control. You, as the Owner of a captive, determine and control the captive’s practices, including reinsurance.
3. Financial benefits. Captive becomes another profit center of you group. If no large losses occurred during the year, accumulated premiums inside your captive become your profit, which can be used at your discretion.
4. Access to international reinsurance market. Reinsurance is cheaper than insurance, but only insurance entities (such as insurance companies or captives) have access to reinsurance. Having established a captive, you will no longer have to look for solutions in the local market and gain access to the global reinsurance market.
5. Tax benefits. Captives are usually established in a jurisdiction with a favorable tax environment.