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Satty, Levine & Ciacco, CPAs, P.C. Blog

When Captive Insurance Companies Beat Traditional Options

Posted by Tom Hallissey on Aug 27, 2019 10:00:00 AM

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To manage financial risk properly, your business must make astute choices. By knowing when to pick captive insurance companies over traditional insurers, you can gain significant protection, cost savings, potential tax reductions and even wealth preservation opportunities.

Captives vs. Traditional Insurers

Captive insurance companies are special-purpose, licensed insurers that underwrite risk. They are typically a wholly-owned subsidiary of another company. Just like how Satty, Levine & Ciacco, P.C. is affiliated with Pivotal Captive Consulting, LLC.

Captives accept premiums that a company would normally pay a traditional insurer and also cover claims brought against the parent company.

Captive insurance companies perform services like these:

  • Set premiums
  • Choose to underwrite risks
  • Write policies
  • Collect premiums
  • Pay out claims

A graphic about how captive insurance companies manage insurance risk.

The captive insurance model may be used to meet a wide range of insurance needs, including:

  • Group health
  • Workers’ compensation
  • Liability
  • Commercial property and auto

Captive Insurance Provides more Flexibility

Captive insurance companies put you in the driver’s seat. You have control of your funds, but at the same time you also have support. Unlike traditional insurers, you can be your own administrator with the freedom to make your own choices.

Traditional Insurance Often Costs More

In order to serve clients, a traditional insurer must be licensed in every state where it does business. It must also pay fees, taxes and expenses in those states. These costs are then typically passed down to the insured.

On the other hand, captive insurance companies are generally more nimble. With lower operating costs, a captive’s self-insurance model can deliver significant savings to its clients.

A handshake between a client and an employee of one of the local captive insurance companies.

4 Times you’d Rather Work with Captive Insurance Companies

There are many circumstances when working with a captive insurer is in your company’s best interests. This alternative form of risk finance may be a wise choice at times like these:

1) When you want more Information

If you choose a captive insurer, you will benefit from easier access to vital information, like claims data.

2) When you want more control

With a captive, you will have greater control of your risks, which will allow you to allocate resources and manage risks as you see fit.

3) When you need lower costs

Captive insurance consulting companies provide more direct savings opportunities and potentially lower premiums.

4) When you want coverage to meet your specific needs

Unlike traditional insurers, captives allow you to craft the exact type of coverage that provides your company with the most benefits.

Captive insurance companies are a popular financial services alternative today, because of their unique approach to risk management. If you would like to learn more, schedule a consultation with a local accountant.

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Topics: Insider

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