What is a Captive Insurance Company?
A Captive Insurance Company is an independent corporation set up to insure certain business risks of a closely-held company or a group of business entities. It is incorporated in a particular state or foreign jurisdiction. The Captive Insurance Company will be licensed by its domicile to issue property and casualty insurance, not life insurance, with the objective being to insure risks that are presently underinsured or uninsured.
Most states have Captive Insurance laws allowing the formation of this type of entity, yet major differences exist among the states, with some being much more “Captive friendly”. Therefore the domicile selected for a particular Captive requires careful consideration and analysis.
If your company is a candidate for a Captive, the initial steps are choosing a captive management firm, selecting a domicile, and identifying “manageable” business risks. We can help you determine if a Captive is right for you and assist you with these preliminary steps, then interface with the management company on the next step, a thorough feasibility analysis.
During the feasibility analysis, the underwriters and actuaries within the captive management company will work to quantify the risks present in your business operation. They will obtain premium quotes from commercial insurance companies to establish the premiums that should apply to each individual risk. Your operating company will then choose to purchase appropriate coverage from the Captive at the rates substantiated by this arm’s length method.