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What is an Insurance Captive?
Workers compensation captive arrangements are not nearly as complex as they might
seem. Many insurance companies have created packaged, turn-key captive products and
programs that make the creation and management of captive insurance companies a very
easy and straight-forward process.
These new arrangements allow for the captive owners to share in underwriting
experience and profit without having the traditional management costs associated
with owning a captive company. Today's captive arrangements are more affordable and
customizable than ever. They require less capital to start, are more affordable to
operate, and often require less risk on the owners part.
We think a captive arrangement is best utilized with an annual insurance premium
greater than $500,000. It is beneficial to have 3 or more years of loss experience
to help customize a captive model to help predict captive risk and reward factors.
Our agency helps employers understand the benefits and risks associated with
starting and owning an insurance captive for workers' compensation. We can also
assist you with establishing a relationship with one of our insurance partners
specializing in captive formation and management.
For more information about workers compensation insurance captives, or to discuss
alternative market solutions, please contact one of the captive Specialists at our
We specialize in segregated portfolio company captives (SPC's) for workers;
compensation insurance because they can be more affordable to administer. An SPC is
a parent company captive and is a single entity like most captive companies.
However, the SPC can be made up of individual cell captives. These cells are legally
protected and the assets of each cell are held separately from the liabilities of
other cells within the SPC.
The hidden advantage of an SPC is that it is an easier and more cost effective
solution to owning a captive. Additionally, the time and expertise requires is
greatly reduced. While an SPC cell is similar to a traditional rent-a-captive,
segregated portfolio captives can be more desirable because they provide better
financial protection to the cell owners.
Insurance captives have several different forms and can be utilized for many
different types of insurance risk. Workers' compensation and health captives are two
common lines of coverage commonly converted to captive arrangements. The overall
concept of a captive arrangement is the same regardless of the legal variation or
type of arrangement.
Workers Compensation Shop.com has operated its own agency captive since 2006. We've
helped and participated in many other captive arrangements since then. We have
Captive Specialists who understand the process of forming a captive and can help
employers and business groups create their own captive company with the help of our
captive partners. Our captive programs are fully customizable and designed to help
maximize the return of profit from workers compensation premium and or reduce the
cost of coverage on a long-term basis.
A captive can be a great alternative market solution for both insurance agents and
business owners. They create a mechanism to build wealth through premium in a tax
deferred manner. Captives can be formed in the United States or offshore. Offshore
captives have traditionally been utilized because they may require a lower
investment and reserve funding than many domestic captives.
Traditional first dollar coverage insurance policies have been the primary tool for
managing workers insurance risk because they are the easiest and most
straight-forward method. However, they are often the most expensive and least
customizable method for larger risks with health claims history.
Captive insurance programs have become more commonplace in recent years because
numerous insurance industry carriers and experts have made it more affordable and
easier for employers to create and operate their own captive company. Captives have
become an effective method for business owners to build asset reserve with pre-tax
dollars to more efficiently and effectively self-insure.
Captives can create a new revenue stream by shifting underwriting profits back to
the captive company established to insurance the original risk.
Captives may help create a mechanism for earning and retaining underwriting profit
as tax-deferred reserves for future claims. Wealth can typically be redistributed
outside of traditional estates.
Captive owners have more control over the plan design, premium, policy reserves and
claims management than traditional arrangements.
Ultimately, a low loss ratio and high reserve fund may facilitate lower workers'
comp insurance rate requirements needed to sustain the cost of expected claims and
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