Captive Insurance Strategy Reins in Costs

Numerous businesses have examined their books and concluded that they are spending too much for the protection provided by their insurance policies. The realization has given rise to the captive insurance consulting industry.

The consultant sets up a two-prong insurance strategy by determining how much risk the company can take on. The so-called captive then self-insures against some of its potential liabilities and places the balance with a reinsurance company with the help of the consultant.

The experts in captive insurance consulting specialize in working around commercial insurers and book better premium arrangements with the reinsurers. They can also advise clients on strategies that will result in additional savings in a variety of ways.

Although the practice is legal at home, many of the captive plans are incorporated outside the United States. That is done to take advantage of favorable tax rates, less cumbersome regulatory environments and the expertise of firms with extensive backgrounds in the strategy.

Determining Whether Captive Plans Are the Right Strategy

The first task that captive insurance consulting agents will take on in working with clients is to examine the insurance history. Companies paying premiums in the seven-figure range for policies that have required small payouts are obvious candidates.

Next comes an assessment of how comfortable the stakeholders in the company are with taking on risk. That goes hand in hand with assessing how well management has handled finances over the years.

Lastly, captive insurance consulting companies might look to match the client with other companies in the same industrial sector or with comparable insurance profiles. That can result is even lower premiums.

Making the Call on Moving Forward

Self-insuring puts company assets on the line, meaning the management team must be prepared to navigate through losses on claims that could exceed what they were paying a commercial insurer to cover. A consultant’s job includes weighing the pros and cons after assessing the risk tolerance.