The Advantages of an Association Captive Insurance Solution
Captive insurance companies offer an alternative to traditional insurance arrangements. They can be set up to insure the risks of a single parent company, the risks of an association’s members, or the risks of an industry group. They help control insurance costs and provide an opportunity to reduce taxes.
Moreover, captive solutions have gained popularity over the years. In fact, according to A.M. Best Captive Center, today there are more than 5,000 captives globally as compared to about 1,000 in 1980. Bermuda is the largest single jurisdiction followed by the Cayman Islands. In the United States, Vermont is the largest domicile with over 900 companies licensed in the state. What’s more, in the last several years the number of states that authorize the formation of captive insurance companies has increased to more than 30, with Texas, Florida North Carolina, and Ohio most recently added to the list.
From multi-national companies to non-profits, entities have set up captives to cover a wide range of risks, including Workers Compensation, General Liability, Product Liability, Directors & Officers Liability, Professional Liability, and Medical Malpractice. Captives also provide specialized coverage for unusual or hard-to-insure risk, such as terrorism.
There are several types of captives, including: a pure or single-parent captive, sponsored captive, agency captive, protected cell captive, rent-a-captive, risk retention groups, group captive and association captive. Here we will review the advantages of an association captive.
An association captive is formed to insure the risks of member companies when they have a legal association for purposes other than insurance and the association has been in existence more than one year. It’s similar to a group captive except that it’s sponsored or owned by a group of entities within a particular organization with common insurance needs and similar exposures. (A group captive is established by a group of companies with similar businesses or exposures writing only the risks of its owners and/or affiliates.)
Captives allow associations to tailor insurance protection where members need it most, provide access to increased coverage and capacity, and allow for greater underwriting flexibility. Members of the association captive also gain direct access to wholesale reinsurance markets. In addition, with a captive, associations have increased risk control and more cost-effective administration to help lower premium costs. They can earn underwriting income as well as investment income on the reserves held to pay for future losses. And, they can gain favorable tax benefits. Also, in offering captive services, associations can attract new members and boost their non-dues income.
Knowing how where to begin to set up an association captive is critical. The association needs a competent and trustworthy consultant and service provider, guidance in determining the feasibility of a captive, the ability to raise the needed capital, and assistance in designing and implementing the captive. At Caitlin-Morgan we can assist your association insureds with determining whether a captive solution is appropriate for them. We specialize in several types of alternative traditional insurance solutions, including the implementation of captives. Please give us a call at 877.226.1027 to discuss how we can assist you with your clients.
Sources: NAIC, A.M. Best, Vermont Department of Financial Regulation