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What is a Group Captive?
A group captive is a group of companies who join together to form their own insurance company. More specifically, a group captive is a re-insurance company where its shareholders are also its policy holders.
Typically this group is a mixture of small and medium sized companies banded together with a desire to control their own insurance destiny. Member companies are usually entrepreneurial in nature with good loss histories and effective risk management programs in place.
Through the unbundling of many of the captive insurance companies services, captives let companies gain ownership and control of all aspects and, specifically, all costs associated with their insurance programs.
Coverage provided within the captive includes:
- Workers Compensation
- Commercial General Liability
- Automobile Liability/Physical Damage
How do Group Captives work?
Captive premiums are made up of a loss fund and fixed expenses. The loss fund is derived by an independent actuary from a company's loss history (5 years), industry, lines of coverage, etc. The fixed expenses are comprised of fronting and reinsurance costs, taxes, claims and loss control, operating expenses, brokerage fees, and captive management fees.
The flow of money in the captive process is explained by the diagram below. Essentially, the companies that make up the group captives pay their premiums much like they have in the past. That money is used to pay for any losses that your company has for claims that occur during that year. Occasionally, you will have to share large losses with other members of your group. The money left over is put into an account that the group can use to pay "dividends" to its members beginning 4 years after the inception of the group. Given a good loss ratio, you will potentially have a return on your premium investment instead of not being rewarded for controlling your losses in the "sunk cost" approach of the traditional insurance market.
What are the Benefits of Captive Insurance?
Ownership and control of insurance costs
Professional partners are hand-selected by captive owners
Captive members control how their specific claims are managed
Loss control services are customized to meet members' needs and reduce risk
New members are identified and approved by captive owners
Reduced overall costs
Contributions are based on your company's expected losses
Premiums are likely to be more stable from year to year
Members have the ability to retain investment earnings and underwriting profit
Fixed costs are controllable and can be reduced
Improved insurance program
Enhanced coverage, marketability, and cost control
Forum for exchange of ideas, learn from fellow members' experiences
No surprises in the renewal process, no bidding upheaval
The key benefits of participating in captive programs are:
Greater control of insurance programs
Stable insurance costs
Enhanced coverage
Aggressive claims management
Specialized loss control services
Potential to receive underwriting profit and investment income
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