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Captives: Is it time to look into insurance alternatives?

By May 17, 2021March 4th, 2022No Comments
Captives- Is it time to look into insurance alternatives

More than 51% of companies throughout the United States have entered some form of an alternative insurance program for their property and casualty insurance needs. This shift is largely the result of severe losses from major storms and natural disasters, with 2017 considered as one of the costliest years.

The cost of property and casualty insurance

When evaluating the cost of business insurance, several factors impact property and casualty insurance rates for businesses all over the United States. The shortlist includes year-after-year of large loss events, increased medical costs, higher automobile related losses and adverse selection. As Property and casualty insurance rates rise, more and more business owners seek alternative options to traditional business insurance.

A viable alternative to the conventional insurance market

A viable option to the conventional insurance market is an alternative known as a member-owned group captive insurance program.

A member-owned group captive is defined as an insurance company that provides insurance to and is controlled by its owners. These programs serve a broad range of industries, empowering their members with the security and peace of mind that comes from greater control over their insurance destiny.

Member-owned group captive insurance alternatives are nothing new. In fact, many of the most successful group captives have been in existence for more than 35 years.

Adverse selection and the impact on your business

As more and more of the better-performing companies leave the traditional insurance market for an alternative such as a member-owned group captive, adverse selection becomes a critical component to those that remain.

Those better-than-average performing companies leaving for the alternative insurance option helped insurance companies offset losses from poorer-performing businesses. Without the ability to offset losses, insurance companies have no choice but to begin increasing insurance rates to combat deficient loss ratios caused by the departure of the stronger companies.

If you’re one of the better-performing companies choosing to purchase insurance within the traditional insurance marketplace, you’ll be paying more for insurance year over year.

How a member-owned captive insurance program can benefit your business

There are many ways in which a member-owned group captive insurance program can benefit a business. Some of those benefits include:

  • Potential return of underwriting profit in the form of a dividend
  • Competitive overall premium; initial pay-in premium is often less than conventional insurance programs
  • Potential investment income earned on the dollars in your loss fund
  • Enhanced loss control and risk management services
  • Enhanced claims management including a TPA selected by the captive’s owners
  • Long-term premium stability
  • Multi-state capabilities

Who qualifies for a member-owned captive insurance program

Not every business will qualify for a member-owned group captive insurance program. In order to qualify for this alternative to insurance, a company must show a strong commitment to safety, above average loss history, be financially sound and pay a combined premium for workers compensation, auto liability/physical damage and general liability/garage liability in excess of $100,000.

For those who do qualify, a captive insurance program may provide a long-term, stable mechanism to control insurance costs and cope with changing market dynamics.

How to select a member-owned captive insurance program

There are several different captive managers in the alternative insurance market space. When considering a member-owned captive insurance program, it is important to ensure the captive manager/consultant and the broker you are working with have a proven successful track record and have the experience, knowledge and understanding of captives.

Do your homework, ask for references and speak to existing members who aren’t existing clients of the broker. A member-owned group captive is not a short-term solution, it is a long-term, stable environment for strong companies wishing to obtain more control over their insurance destiny while reaping the benefits that may come with being an owner of an insurance company with other safe, quality and like-minded businesses.

If you have questions or want to learn more about captive insurance, speak with our Lehigh Valley insurance experts. Arbor Insurance Group provides captive insurance and other business insurance products throughout the Lehigh Valley, including Allentown, Bethlehem, Easton, Emmaus, Macungie and surrounding areas.

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