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.