July 24, 2017
Steven Mallow - Captive Division Leader for The Rackley Group
Captives are unlike the standard market in several ways. Some of those ways may be good and some may be bad, depending on your situation. The following are three reason why a captive is not for you.
If you are a risk adverse person or company then you don’t want to be in a captive. As the member-owner of the captive you take on the first layer of your losses. The very first dollar of the loss is coming out of your pocket, not the insurance company’s. By being in a captive, the amount of financial risk that you take on is higher. Standard market carriers take on the first dollar of liability losses in most cases which equates to less risk for the insured.
Company culture plays a big role in a company's success. It also plays a role in how the employees behave. That brings us to workplace safety. If you haven’t invested in company culture and loss prevention, then a captive is most likely not the place for you. Since you are more likely to have losses on your worker’s compensation policy as well as your general liability policy you wouldn’t want to be the one footing the bill. Since captive premiums are based off of your company’s actual losses and not everyone else’s, the potential for rate increases is high.
The third reason you don’t want to be in a captive is that some industries aren’t the best fit for one. As we all know certain industries are more prone to losses than others. If you are not afraid of the risk and you are dedicated to loss prevention but you still see high loss ratios then stay away from captive insurers. Why pay the first portion of losses if you already know there will be a high amount of them?
These are three reasons that a company might stay away from a captive. If these don’t describe you or your company and you want to learn more about captives and their benefits, check out the blog at www.therackleygroup.com or look at my other articles on Linkedin.
By Steven Mallow - Commercial producing agent for The Rackley Group
Captive insurers can be the absolute best plan for your company for a multitude of reasons. Here are my top four reasons why:
Underwriting profit is returned to the members of the captive. Unlike the standard market, normally within three to five years all premium, other than administrative costs and paid losses, is returned to the members. Think about the huge amounts of money spent in insurance premiums never to return. The underwriting profit, in those cases, stays with the insurance company. Each member of a captive is basically an owner of an insurance company, so the profit stays with them.
Members of captives have control over their insurance programs. Each member has a vote and all members, no matter the premium size, have the same number of votes. The biggest company, by premium, will not have the most weight, they will have the same weight. Voting members can decide who is accepted into the captive and can even decide if it’s time for a new claims administrator.
Which brings me to my third reason, third party claims administrators. The company or person that works on the claims doesn’t work for the insurance carrier like in the standard market. They work both for the member and the captive as a whole. In which scenario would be more favorable for you? When the other side is paying the person who makes the decision and you have no say in it or when you do have a say?
The final reason a captive could be for you is this, future premiums are based off of each member’s own independent loss history. It doesn’t matter if the member is a hotel operation and the industry has seen huge losses or not. If the insured has done a good job with risk management and loss control, in the long run they will be rewarded.
I believe these to be four of the most important reasons to be in a captive. Stay tuned for more on captives here or check out the blog on www.therackleygroup.com
July 7, 2017
By Steven Mallow - Commercial Producing agent for The Rackley Group
According to Captive.com, “a captive insurer is generally defined as an insurance company that is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer’s underwriting profits.”
Being wholly owned and controlled by its insureds means each member has voting rights. The members can vote on who is accepted into the captive as well as on operational items, which is nothing like the standard insurance market. When is the last time your current insurance company asked you how you would like them to proceed?
Captives include a layer of self-insurance. If you are risk adverse ,you will want to shy away from any form of captive. Each captive would have a set retention applied to the losses they incur. On top of the retention is a layer of reinsurance and getting coverage beyond that would bring the need for umbrella insurance.
Premiums are based off of member’s individual loss history, regardless of the market or industry experience. As loss ratios go down, underwriting profits go up. Now comes the best news of all. As a member, these underwriting profits are returned to you, instead of staying with the insurance company.
Is a captive for you?