Captives 101

Captive insurance refers to an insurance company that is owned and controlled by the insured (also known as the policyholder). It is a type of alternative risk financing that allows companies to take control of their insurance costs and manage risks in a more effective way.

A captive insurance company provides coverage for the policyholder's specific risks and needs, rather than relying on a traditional insurance company. The policyholder is responsible for funding the captive insurance company, but in return, they have more control over the coverage, claims process, and pricing of their insurance.

For example, a construction company that wants to protect against the financial impact of potential construction defects, can form a captive insurance company. Instead of buying insurance from a traditional insurance company, the construction company can self-insure through their captive. This allows them to have more control over their insurance costs and potentially save money, as the profits made by the captive can be used to offset future insurance costs.

Captives can also provide access to insurance coverages that may not be available in the traditional insurance market, and they can be structured to meet specific tax and regulatory requirements. Additionally, captives allow companies to retain control over their risk management practices, including claims handling and loss control.

In conclusion, captive insurance provides a flexible and cost-effective way for companies to manage their risks. By forming a captive insurance company, companies can take control of their insurance costs and tailor their coverage to meet their specific needs. If you are interested in exploring the benefits of captive insurance for your business, please contact us for a consultation.