Businesses are required to carry insurance for general business claims, but what if a business offers specialized products or services that cannot be insured through the traditional insurance market? In these cases, many firms have chosen to create their own captive insurance companies.
Because the company owns the captive, it controls claims management. While commercial insurance may focus on larger claims, leaving small claims to sit without a resolution, self-insurance allows companies to immediately address small claims so they do not grow into large claims.
In addition, captives and corporations have legal teams that are not influenced by an outside insurance company. Therefore, frivolous lawsuits can be handled immediately and in a way that allows the company to come out on top. For example, the prosecution may have to pay all the legal fees associated with the claim if the claim is dismissed, dissuading future lawsuits.
Commercial insurance markets set their prices based on the industry. These companies also diversify their risk over all their policyholders, so you may be paying higher premiums to cover claims against other policyholders.
Captives can set prices that are based on company history and processes while still accounting for industry trends. Therefore, these companies can reduce corporate insurance premiums, pricing them at an almost wholesale price. In addition, the middleman is removed from the insurance process, reducing overhead and stabilizing prices. Risk management enables businesses to control their costs and focus on areas or processes that reduce risk, lowering insurance costs further.
The traditional insurance market may not offer the coverage your business needs at all or at an affordable price. For example, professional services, such as medical practitioners, and construction industry companies have risks that may not be covered through commercial insurance. Through captives, these companies can tailor their policies to address their risks. These policies also have a limited scope, so businesses pay for exactly what they need and nothing else.
As you review all the advantages of captives, consider how your business could benefit from its own insurance company.