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The captive insurance industry is growing as more commercial insurers bow out of high-risk industries or charge more for necessary coverage and companies search for the best rates on the policies they need. When you are trying to decide if this form of self-insurance is right for your business, it is a good idea to know what these services offer and how your company can benefit from them.
The dictionary definition of captive insurance services can offer a little insight into what these companies are, but it can differ from the practical application of the services. For instance, knowing that a captive insurance company is a wholly-owned subsidiary created to manage risk-mitigation for the parent entity, lets you know that by joining a captive, you become one of the owners of it. It is important to remember, however, that you will not be responsible for all the decisions made by the captive, but you are held liable for claims settlement.
In practice, a captive insurance company handles the day-to-day insurance negotiations, claims processing and litigation involved in your business’s coverage while you help underwrite the insurance with the rest of the group. Your premiums, and those of the like-minded businesses in the group, are pooled together along with the risks and decision making. You can earn dividends for good years with few claims and you may need to help cover larger claims during bad years. Because of the shared risks and benefits, many captives offer incentives for safety measures and there may be a high bar to entry.
Captive insurance companies can help you get the coverage you need for industry-specific risks that traditional or commercial insurance companies do not have available. Group captives spread risks and rewards over the member companies, promoting safety programs to minimize the amount paid in claims each year.