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Businesses, no matter how large or small, are always trying to find efficient ways to manage risk. This is particularly true for B2B companies that face unique challenges when it comes to risk management.

One popular solution among these organizations is group captive insurance. This novel insurance option provides businesses with a chance to control their own insurance costs and enhance their risk management strategy with personalized coverage. Read on to learn more about group captive insurance programs and how they can be beneficial to B2B businesses like yours.

Understanding Captive Insurance Companies

Before diving into the nuances of group captive programs, it’s important to understand the history and importance of captive insurance. As the experts at Investopedia explain, “A captive insurance company is a wholly owned subsidiary insurer that provides risk mitigation services for its parent company or related entities.”

This form of self-insurance is often used to meet the unique risk-management needs of the owners or members. In addition to greater control over coverage, this insurance solution can also offer lower insurance costs and tax advantages in the long term.

Captives are becoming an increasingly popular option, and the National Association of Insurance Commissioners estimates that approximately 90% of Fortune 500 companies have captive subsidiaries.

Representation of group captive insurance

The Concept of Group Captive Insurance

Captive insurance companies have been in existence for decades, and there are many different classifications of captives. A group captive is one such type of classification that is a member-owned reinsurance company that is fronted by a financially strong and well-known insurance carrier.

There is also the option of a member-owned group captive insurance company, which is formed by multiple companies, either in the same industry or from different industries, to insure the risk of their collective businesses. It helps mitigate risk across traditional insurance offerings such as workers' compensation, general liability, and automobile insurance.

In a group captive, premiums are based on a company’s claims history, not market swings. If claims are low, then premiums are low. The unused premiums are distributed back to the group captive member-owners in the form of dividends.

Who Can Benefit from Group Captive Insurance Program

This type of insurance is popular among B2B businesses since they can tailor coverage to their unique needs. Some examples of B2B businesses that can benefit from captives include:

  • Distributors
  • Distributors
  • Heavy Construction
  • Manufacturing
  • Temporary staffing
  • Trade contractors
  • Trucking and transportation
  • And more…

Benefits of Group Captive Insurance for B2B Businesses

Group captive insurance offers unique benefits for B2B businesses. Here are a handful to consider:

Risk Control & Management

As previously mentioned, perhaps one of the most important benefits of captive insurance for B2B businesses is the opportunity for increased coverage and capacity. Group members can design specific policies to meet their needs rather than settle for defined and limited plans from traditional insurers.

Businesses benefit from comprehensive coverage and can also share best practices for managing and reducing risk. This encourages best practices among the group to help keep claims low, (which further benefits every member’s bottom line).

Cost Savings & Stability

Speaking of costs, we can’t ignore how beneficial it can be for businesses to pool together to reduce the cost of insurance premiums. It is common for companies with low claims history to save up to thousands of dollars on their premiums by switching to a group captive.

Similarly, premiums are based on the group's loss experience, not the broader market. This makes it easier to control costs and provides more predictable pricing, unlike traditional insurance.

The Official State of Oregon also emphasizes how captive members can benefit from additional cost savings through the elimination or reduction of broker commissions and lower administrative costs.

Customization & Flexibility

In addition to traditional commercial insurance, many B2B businesses may require more coverage to address their unique risks. For instance, they may require insurance to help with loss control and the risks associated with working with vendors and other companies.

Captive member companies can choose specific insurance and levels of coverage to meet the group’s collective needs. Since they have more control over their insurance, group captive insurance members are also able to better adapt to changing circumstances or needs.

Tax Benefits

There are typically tax benefits for belonging to a group captive as long as the group captive meets IRS guidelines. Since there is shared risk with members of the group, premium and assessment dollars are typically tax deductible.

The potential tax benefits ultimately depend on your business and the group captive.

Enhanced Cash Flow

Last but not least, it's important to note how being in a group captive can enhance a business’s cash flow. As mentioned, this type of insurance allows for the return of unused premiums. If the group has fewer claims, the profits can be shared among members to immediately improve their bottom line.

Similarly, premiums are often paid throughout the year rather than all upfront. This allows businesses to better manage their cash resources throughout the year rather than provide one large sum of money at once.

Find a Captive Insurance Company

As you can see, group captive insurance programs have many potential benefits for business, including:

  • Lower insurance premiums
  • Extremely competitive premiums for risk-managed companies
  • Greater control of your risk
  • Incentives for managing your risk/claims
  • Improved claims handling and reporting
  • Improved cash flow
  • Improved risk management
  • Direct access to lower-cost reinsurance
  • Limited capital outlay
  • Tax benefits
  • Fewer claims and fatalities over time

While this is ideal for any organization, it can be particularly helpful for B2B businesses that can’t find suitable coverage from traditional insurance options.

At World Insurance, we partner with A.M. Best A+ rated insurance companies, and our team of experts can provide you with a pre-captive cost analysis so you can weigh your options. If your business is financially strong, has an above-average five-year loss history, and is committed to improving risk, then a group captive may be right for your business.

Learn more about our group captives and alternative insurance solutions today.


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