Advantages of Captives
Business owners, corporate executives, entrepreneurs and professionals all have differing needs. Effective captive insurance strategies are built around overall business objectives in both the near and long term. The key is deciding what types of risk the company wishes to retain.
By using captive insurance companies and other risk transfer techniques, disparate types of enterprises have reduced the cost of risk, protected their assets, generated profit and reduced their taxes.
Enhance risk control. This is especially important for middle market companies. By identifying sources of risk, businesses can be made more resilient and improve their agility in both near and long-term planning.
Reduce insurance costs. Using a captive largely eliminates the 35% of commercial insurance premium that covers acquisition costs, overhead and profit. Business owners keep the underwriting profit.
Smooth underwriting cycle. Businesses value certainty wherever they can find it. The pricing volatility of the commercial insurance market can be drastically reduced by using a captive, leading to greater budgetary stability.
Improve cash flow. Establishing a captive allows more flexibility in premium payment planning. Owners retain premium and investment income, significantly improving cash flows.
Insure difficult risks. A captive can provide ownership with coverage that is difficult or uneconomical to obtain in the commercial insurance market.
Create new profit center. A captive may operate as a separate profit center, underwriting the risks of third parties, such as customers of the core business. An example might be insuring an extended warranty program on capital equipment. Such a strategy may be useful in customer retention and generating additional revenue.
Improve tax strategy. Because they report profits differently from other companies, captive insurance companies have significant tax advantages.
Access reinsurance market. A captive insurance company may be able to buy reinsurance from the reinsurance market. The captive, therefore, can give access to an international wholesale market that is denied to the direct insured.