A Guide to Captive Insurance

Oct 03, 2018

Taking control

In an increasingly dynamic, evolving and volatile global marketplace, the need to establish and maintain control over risk exposures is critical. To do so, successful businesses develop and implement risk management programs that support their strategic objectives, mitigate against new exposures and probe for emerging threats. Through effective levels of control, businesses achieve stability in turbulent markets, grasp opportunities when they arise and grow profitably throughout the market cycle.

A central role
A central component of the risk control strategy for a growing number of organizations is the captive insurance company. The primary role of a captive is to insure the parent company, who usually owns or is a sister company to the captive vehicle, for all or a proportion of its insurable risks. In practice, however, a captive creates much greater value.

The captive is an ideal mechanism for:

  • Establishing a centralized risk framework
  • Creating tailored, comprehensive and responsive coverage
  • Improving claims handling and monitoring
  • Potentially reducing the overall cost of risk
  • Potentially increasing the cash flow of the combined business enterprise

A captive provides more than just a mechanism to control the risks of the parent company. It also offers entrepreneurial opportunities for joint venture partners, associations and insurance agencies. The majority of companies do not have the appetite nor the financial capacity to self-insure all of their risks, and a captive allows the purchaser of insurance to optimize the balance between self-insurance and risk transfer with commercial insurers to suit their risks and resources. The process ultimately provides an excellent management and negotiation tool when trading risk in the market.

A responsive approach
One of the main strengths of the captive is its inherent flexibility. A well-structured captive can respond quickly and effectively to the changing demands of its parent company or fluctuations in the insurance market. A captive can adjust retention levels or amend insurance parameters when required, offering a rapid response tool which keeps pace with change.

In this guide, our goal is to make you aware of what a captive can offer your organization. We will discuss the many benefits of being a captive owner, summarize the processes involved in establishing a captive and provide a brief overview of the different types of captive structures available. We hope once you have reviewed this guide it will help drive some of the decision making process necessary to determine whether a captive could add value to your organization.