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Group Captives & Alternative Insurance Solutions

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 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 the dividends in addition to investment income that has accrued over time. 

Some of the advantages of moving to a group captive include: 

  • 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 a group captive may be right for your business. 

Captives make sense for: 

  • Agriculture 
  • Distributors 
  • Energy
  • Food and beverage 
  • General Contractors 
  • Healthcare 
  • Heavy Construction 
  • Hospitality 
  • Manufacturing
  • Passenger transportation
  • Retail 
  • 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 

FAQ

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 a group captive, 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 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 a group captive. There are two reasons for this. First, the premiums paid by the members is 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.

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.

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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