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Are Insurance Captives Right for Your Business?

Moira Lyon and Jonathan Sadlier July 1, 2021

As you look at options for insurance, the thought of captives may sound intimidating. Captives are simply defined as insurance companies owned by the insured.

Captives are a way for a business owner, either alone or with a small group of aligned businesses, to take on self-insured risk for issues facing your business, particularly in a challenged market. Members of captives have control over their own destiny, can determine their risk control, and find increased flexibility, along with the ability to see the return of unused premiums.

Captives have been around for nearly 60 years with more than 10,000 operating around the world today. The majority of captives are in North America, throughout the United States and islands like Bermuda and Grand Cayman, with those islands serving as early adopters when captives became available.

“Buying insurance is much less geographic and more about access to information,” says Jason Stevenson, Director, Captive & Alternative Risk Consulting, at Oswald Companies. “If the thought of running your own business and also navigating your own insurance captive seems complicated, it doesn’t have to be. You, and the others in your captive, structure the oversight of the organization so it works for all of you.”

Typically, a captive manager oversees the day-to-day management. A governance board, with representation from each member company, advises the organization. Regular meetings – often twice a year, for two-days at a time are scheduled to address issues and meet organizational needs.

The driving force in creating a captive is stability and control, so business executives can better plan for their business and make decisions about future growth.

Typically, businesses can do one of three things with risk:

  • Transfer it, which is how traditional insurance policies are used
  • Keep it, and assume all the risk on its own
  • Create a combination of those, so the company keeps some of the risk but not all

During hard times, such as after Sept. 11 or in the wake of the 2008 recession, interest in creating captives increased because it’s a good way to ensure aligned consistency for business planning.

“That level of consistency allows companies to plan more effectively, and to reduce both their overall and net effective costs,” said Stevenson. “With a captive, you can control your own destiny, offering you the ultimate in control and opportunity.”

If a captive seems like a good fit for your needs, the first step is to get quality advice from a broker. Oswald has the industry knowledge, marketplace leadership, and proven solutions to get started on a custom program for you today.

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