Wednesday, January 16, 2019

Understanding Group Captive Insurance

When an insurance company sets the premium you pay for your coverage, it does it based on the law of averages. If your history shows you’ve filed more claims than average, you get a higher premium than someone who has never or rarely filed a claim. And it works the same way for businesses. That’s where group captive insurance comes in.

Many savvy business owners have come to the conclusion that, because they run their companies well enough to keep insurance claims to a minimum, they shouldn't have to subsidize more poorly managed operations. And by teaming up with other well-run businesses in the same field, they can save money by starting and funding a group captive insurance company.

How It Works

Because the captive is run on a one-company, one-vote system, the smallest members are on equal footing with the largest ones. And only the captive’s members are allowed on its BOD. In most cases, about $4 of every $10 the captive spends in premiums goes to the costs of running it. These include issuing policies, examining and paying claims, reinsurance and controlling losses.


Your traditional insurance premiums pay for much more than protection. They also cover agent commissions and advertising and administrative costs, all of which boost the carrier’s profit margin. By joining a cost-reducing captive, you’ll boost your own profits instead!
Your group can also choose insurance products that best meet the needs of each member. A qualified group captive insurance management firm can help you prevent predictable losses. As losses drop, the captive's assets rise. They're invested -- and eventually distributed as dividends.
The captive covers each member up to a preset limit and contracts with a standard insurance carrier to cover claims over that. No member ever faces catastrophic losses.

The Bottom Line

If you like the idea of joining other well-run businesses in your field to boost your bottom line in an unconventional way, group captive insurance could be the answer!


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