A Captive Insurance Company, also known as a Private Insurance Company, is a closely held insurance company that is owned and controlled by the same individuals or entities that own the underlying business or related entities being insured. It is a form of regulated self-insurance. It is commonly referred to as an alternative risk transfer mechanism, that being it is an alternative to the traditional risk transfer mechanism of obtaining insurance from a commercial insurance carrier. The vast majority of the Fortune 500 companies have established Captives. Captives enable companies to exercise greater control over their insurance needs and risk transfer.
Most businesses that establish a Captive find that the Captive enables it to:
●Obtain more cost-efficient insurance in a hardening market.
●Access the reinsurance market, where premiums are cheaper than on the commercial market.
●Reap the benefits of a better than industry average loss history.
●Exert greater control over the claims process.
●Obtain insurance coverage that is unavailable or cost prohibitive from commercial insurance carriers.
●Control non-loss costs.
●Appreciate the benefits of an effective loss-prevention program.
●Capture the investment income on premium payments between the time such premiums are paid, and the time such funds are used to pay claims.
●Stabilize cash flow resulting from paying claims not otherwise covered by their existing insurance or within their current deductibles.
Establishing a Captive is not intended to completely replace all of a business’s existing commercial insurance policies. An analysis must be made to determine what level of risk the business is willing to retain and in what lines of coverage.