A group captive is a member-owned reinsurance company that is fronted by a financially strong well-known insurance carrier. A member-owned group captive insurance company is formed by multiple companies, either in the same industry or from different industries, to insure the risk of their collective businesses across workers' compensation, general liability, and automobile insurance.
A group captive insurance program is a long-term solution where premiums are not based on market swings, they are based on your own company's claims history that you can control and reduce. If claims are low, then premiums will reflect this strong history. And since the members own the company, the unused premiums are distributed back to the members in the form of dividends in addition to investment income that has accrued over time.
Some of the advantages of moving to an alternative insurance company:
- 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
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 group captive insurance may be right for your business.
Captives make sense for:
- Food and beverage
- General Contractors
- Heavy Construction
- Passenger transportation
- Temporary staffing
- Trade contractors
- Trucking and transportation
- Strong-performing companies with risk management teams
Captives protect your business from:
- Large, unpredictable price swings
- Subsidizing your competitors
- Poor claims handling and reporting
- Lack of certain coverages
- Low reward for good safety
- Adverse selection
- Market volatility
- Excessive time going out to bid
What is a group captive or an alternative insurance solution?
A group captive, also known as an alternative insurance solution, is a member-owned company that is fronted by an established insurance company. A member-owned group captive insurance company is formed by multiple companies, often within the same industry, to insure the risk of their collective businesses.
In group health insurance captives, premiums are based on your own company’s claims history, not market swings. If your claims are low, then your premiums are low. The unused premiums are distributed back to the group captive member-owners in the form of dividends.
How does a group captive differ from traditional insurance?
Group captive insurance differs from traditional insurance in a few ways. Most importantly, member companies have more control over the insurance process, underwriting, and claims management. They also share in the profits and losses of the captive.
This is an attractive option for businesses that have more control over their risks and want to save on insurance premiums.
How much can a company save on its insurance premiums with a group captive or alternative insurance solution?
It is common for companies with low claims history to save up to thousands of dollars on their premiums by switching to group captive insurance. There are two reasons for this. First, the premiums paid by the members are based on the individual member company’s claims history.
Second, premiums are significantly reduced when the fronting insurance company’s loading costs are excluded from the equation. In addition, with a captive, unused premiums are paid back to the member in the form of dividends, unlike traditional insurance premiums where the investment income is retained by the insurance company.
Who typically forms a group captive?
Group captives are often formed by companies within the same industry or with similar risk profiles. These companies can be large or mid-sized and are typically looking for more control over their insurance costs and coverage.
Group captive insurance often makes sense for businesses in the agriculture and retail space or healthcare, hospitality, manufacturing, and more. An industry expert can help you understand if alternative insurance solutions are right for your business.
What types of risks can be covered by a group captive?
The best thing about a group captive is that it can cover a wide range of risks. This includes but is not limited to, property and casualty, liability, workers' compensation, and various specialized coverages tailored to the needs of the member companies.
What is the typical initial capital investment for a group captive?
A group captive typically has a significantly lower capital requirement than a single-parent captive. Member companies are required to make a one-time capital investment for group captive ownership, typically in the range of $25,000 to $36,000 per member. This money would be invested on the members' behalf earning investment income which would be incorporated in the returns over time. There is also an expectation that the member will remain in the group captive for at least three to five years.
Can companies exit a group captive?
Yes! While being part of a captive is a commitment, there are ways to leave if necessary or if the needs of your business change. However, the terms and conditions of exit may be specified in the captive's bylaws or operating agreement.
Are there tax benefits for belonging to a group captive?
Yes, 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. Your accountant can advise you on the potential tax benefits of belonging to a group captive.
Are there administrative expenses involved with belonging to a group captive?
Yes, there are administrative expenses involved with running a group captive. However, since these costs are shared across the member companies within the group captive, they are typically less than the savings achieved from the lower premiums.
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