An insurance captive provides your company an alternative to traditional commercial insurance. In exchange for investing your own capital (rather than relying on the capital of an insurance company), your company will incur risks but can also benefit from profits in the form of dividends.


Why choose a captive?


As an alternative means of risk management, you may wonder why a company would choose a captive over more traditional insurance. It all has to do with the needs of your company. In general, a captive might be a good choice if available insurance options fail to provide the capacity you need for adequate risk management, offer insufficient coverage, or charge excessive pricing, and you’re in search of a more cost-efficient solution.


Advantages of a captive


Participation in a captive offers you several advantages normally held by larger companies. These include:

  1. Pricing stability. Tired of annual increases with traditional insurance companies? With a captive, your risk is reduced over time as the captive gains more capital. You’ll help to insulate your company from the risk experienced by the traditional insurance market.
  2. Increased control. With a captive, you’re an owner, so you get to call the shots—designing the rules and guidelines to meet the needs of your company. You also have control over the loss through self-funding of your predictable losses; and claims handling, which can be unbundled. You won’t be at the mercy of a commercial insurance company, whose policies and interests may be mostly self-serving.
  3. Improved cash flow. Working on your own, outside a traditional insurance situation, you avoid expenses associated with that type of arrangement. Plus, you experience financial benefits for effectively controlling losses—and any profits that would be otherwise held by a commercial insurance company are instead retained by the captive.
  4. Tax advantages. Captives offer participating companies tax benefits that include: a tax deduction on the premium payment paid to the captive by the parent company, tax savings opportunities such as gift and estate tax savings, and income tax rate savings on distributions to captive holders.
  5. More robust coverage. If you’re in search of specific coverage, you may have found that commercial insurance is expensive for what you need, doesn’t match your needs, or simply isn’t available for what you need. With a captive, you can tailor coverage to fit the exact needs of those covered by the captive.


Wondering if a captive is right for your company?


Odell Studner specializes in helping our clients understand and reduce risk to accelerate growth and increase profitability. To learn more about the services we offer and how we can help your business, contact us today.