Flexibility - Captive ownership lets you structure your insurance program in the way that benefits you most. When you hire a Captive Manager, he or she is beholden to you, not to some functionary in a giant insurance company.
Money Machine - Owning an insurance company is like having a Money Machine. You get to choose the risks you want to insure and reject the ones you don't like. You hire actuaries who are skilled in the laws of large numbers and you instruct them to create statistically solid rates that will deliver a solid profit margin. And your money is leveraged. For every dollar of capital in your Captive, you write three to four dollars of premium that is used to earn interest income.
Think about this! If you are dealing with commercial insurers, every dollar your companies pay to them is earning interest for them. Now reverse that! Every dollar of premium income your Captive brings in will be earning interest income for you.
Fairness - Every policy you buy contains several pages of conditions and exclusions. You are self-insuring against all those excluded perils and mitigating circumstances. If you own a Captive you can choose to cover all the exclusions (except illegal activities or criminal behavior by a named insured) and take a tax deduction for the cost of the coverage. You may have wished at times to have some insurance that is either too difficult or too expensive to obtain. You can cover it in your Captive and take tax deductions. There are some forms of insurance you may never have a claim on but you need in order to satisfy a customer or a Board of Directors, things like Employment Practices Liability insurance, Directors and Officers Liability Insurance, and Professional Errors and Omissions Insurance. Cover them all in your Captive at commercial market rates and allow the premium in excess of losses to accrue, mostly tax free, in your Captive's reserve accounts.
On The Job Safety. Virtually every employer has been told by his insurance company that he needs to take some action the insurer's safety engineers deem to be necessary, and that the additional safety measures will produce lower premiums for him in the future. So he makes the improvements and his safety record improves and losses are sharply reduced. Two years later he gets a modestly reduced premium or a dividend that is only a small fraction of the savings that his safety expenditures produced. When you own a Captive Insurance Company, 100% of those savings come straight into your pocket without delay.
Technology. For most businesses there is technology available which has been shown to reduce losses. Some of it is so good it cuts losses in half. When you ask your insurance company how it will affect your premium they may offer you a 5% reduction with a promise that a year or so after you lower your losses they will further reduce your premiums. When you are insured by your own Captive insurance company, every dime you commit to safety, quality control and loss prevention redounds to your benefit. All the savings go into the Captive Insurance company reserve accounts and they are all free or mosty free of taxes.
Letters of Credit. Insurance Companies exist to leverage their capital. Many substantial businesses have large self-insured retentions on their commercial liability policies. When a large loss is charged to your account a reserve is established and you may be called on to provide a Letter of Credit to cover the self-insured portion of the reserve. The insurer earns interest on its money every day that your loss remains unsettled, which is kind of a disincentive for the insurance company to settle it. If you are insured by your own Captive Insurance Company your claims are handled by a third party administrator who has no ax to grind about the interest being earned. His job is to settle the claim quickly and wisely.
Typically, the overhead paid by the owner of a Captive for general administration of the company is about half of what he would pay a standard insurer. So, putting claims experience aside, his net saving against the insurance he previously carried is $0.15 to $0.20 on each dollar. A Feasibility Study or PCC Proposal will illustrate the projected return on your investment.
My advice: Learn About Captives as potential options!
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Edward Beneville,
874 Border Ave, PMB C6
Joshua Tree, CA 92252
http://www.captiveinsurancedynamics.com
Tel 1 760 366 4670
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