Benefits of Group Captives
Discover how group captive insurance allows businesses to self-insure collectively, potentially reducing costs and improving risk management. Learn about the structure, benefits, and advantages of this alternative insurance model for well-run, safety-focused companies.
Benefits of Group Captive Insurance
Empowering Businesses to Self-Insure and Reduce Costs
In simple terms, a group captive is an insurance company created and wholly owned by multiple businesses to insure the risks of its member businesses. This beneficial structure is established to meet the risk-management needs of the owners or members.
The standard insurance market is based on the law of large numbers. Better run businesses with fewer claims subsidize those with more claims. Those “better” businesses, that are well-run and safety-focused, can qualify to come out of the standard market and insure themselves in a captive program where the collective risk is significantly lower than in the general insurance pool. Since these businesses will have fewer claims, they will earn lower premiums than they would in the traditional market. Over time, most members earn very significant premium reductions.
Your premiums are determined by actuaries based solely on your individual claims history, not by general industry averages or insurance companies. Remember, captive members typically have better claims histories than the industry average and therefore having premiums based solely on their history will result in lower costs. Since members in a captive typically improve their claims performance year after year, this compounding of lower claims every year can produce rates for you that are dramatically lower than the industry average.
Approximately 40% of your premiums will be used to cover the expenses of your captive program. This will include the fronting company fee, the reinsurance for your captive, the claims management costs, agent commission, as well as other captive operating costs.
This lower cost structure of a captive allows approximately 60% of your premium to be seeded into your Initial Loss Fund (see B in Captive Program diagram below), as shown in the diagram above. If you do not completely use your Loss Fund, it will remain in your “account” for later distribution, potentially earning investment income. Also, since those claims that do occur are not paid immediately, the required claim reserves will also be set aside and invested with any investment proceeds also going to your account. As you can see, investment income is a significant way to help pay for potential claims as well as something to be returned to you later as a dividend.
As you can see, the combination of shrinking premiums and the return of underwriting profits to you translate into an overall dramatically reduced cost to insure a business as compared to the traditional insurance marketplace.
Still, businesses in a captive typically also receive the additional benefit from Greater Control over their Risk Management Program due to an excessive pricing, limited capacity, coverage that are unavailable in the "traditional" insurance market, and/or the desire for a more cost-efficient risk financing mechanism. They are able to achieve that control through improved cash-flow, transparency, the ability to customize coverage, improve claims handling and reporting, and stabilized budgets.
To learn more, please download a free copy of Turning Premium Into Profits.
Turning Premiums Into Profits: How Captive Insurance Can Revolutionize Your Business
Captive Insurance Services
Your Single Destination for Captive Solutions
“Selling” you on using insurance captives is not what we want to do, as captives are not for everyone. Only businesses that understand and can benefit from using insurance captives should pursue using captives to finance their risks. Providing the guidance, tools, support, resources and education needed to help achieve success is the focus of the Duncan Financial Group.
In addition to guiding and supporting you through the entire captive process, Duncan provides initial and ongoing workshops and webinars on the types and structures of captive, how they work, how to gauge success, benchmarking results and key performance indicators, understanding captive financials, as well as keeping you abreast of current events that impact the captive insurance world. Having a deep understanding of the captive success factors and challenges you may face is key to improving your captive success.
Although reducing insurance costs through the lower cost structures of captives is attractive to business owners, it is important for a business owner to know if a captive is the right option for them. We will perform an analysis of your safety and risk management practices, as well as a claims analysis, to determine if the time is right for you to look at a captive. We can also determine if a group or association insurance captive, or your own single parent captive, makes the most financial sense for you to pursue.
Preliminary Financial Analysis
Entering a captive can be financially advantageous, but there is an initial cost of starting your own captive, or entering a group captive. We will review those costs as well as assess the impact of the collateral requirements on your financial picture. This includes potential impacts on cash flow, loans, or lines of credits. Our accounting and CPA professionals can review your current financials, and financial situation, and help advise you in your decision, and even make recommendations to help structure your financials before submitting for captive review.
Preparation of Captive Submission
Qualifying for a captive and establishing your premiums and reinsurance costs requires a much more extensive compilation of data about your business, your operational and claims history, and financial picture. We will walk you through this process and help gather all of the required data; we will then compile it into formats that the captive managers will want so that they can analyze your submission to join their captive.
Captive Manager/Program Selection
With over 7,000 captives, over 1,000 captive managers, and hundreds of group captives, finding or creating the right captive program and choosing the right captive manager is important for both the protection and financial success of your business and your captive. In addition to our own captive domiciled facility and captive manager, we have access to dozens of captive programs and managers that can best meet your needs.
Consultation on Captive Ownership
Understanding who should own your captive can impact who has the financial responsibility and benefit of the captive, such as receiving dividends from the captive and their taxable impact. Understanding your goals, whether business, individual, or even your estate, will need to be considered when determining who should own your captive or captive shares. Our captive experts, and accounting and CPA professionals can advise you as you make this important decision.
Ultimately, your claims will determine the success of your captive performance. Helping to minimize the cost of your claims will be crucial to reducing how much is paid out and increasing the profitability of your program. Our deep team of over a dozen seasoned claims professionals will be your advocate and work to make sure any claim is managed, settled, or even denied, in your best interest.
Safety & Risk Management
You already have a significant focus on safety and quality, otherwise you would probably not be interested in insurance captives. However, identifying risks in your business, and determining the best ways to reduce or eliminate those risks will help achieve greater captive success. Our team of over a dozen Certified Safety Professionals, Certified Risk Managers, and Certified WorkComp Advisors can help your team build and implement custom risk management programs to reduce your total cost of risk and improve your captive profitability.
Human Resources
The success of any business starts with its employees. Hiring, managing, training, and retaining the best employees are obviously critical. Our deep team of human resource specialists, including a human resources attorney, is there to support your team so they have the right information, make the right decisions, and implement the best programs.
Benchmarking Captive Performance
Just because you are in a captive, does not mean that you do not need to worry about how things are going, how things are performing. Assessing how well your captive is performing, especially in a group or association captive is critical. We will work with you to assess how well your captive cost structure is performing against the traditional marketplace, help you to understand and determine if there other members of your captive that are overly negatively affecting your results, and if the captive cost structure is appropriate.
Benchmarking Your Business’ Performance
As the cost of your captive insurance program is directly affective by your claim costs, it is important to manage your captive, not by the end results (your claims) but by a complete matrix of criteria that are leading indicators of potential problems that could lead to claims. Criteria such as injury frequency, near misses, rejected product counts, turnover, peer observation reports, and out of service vehicles, are just a few of the leading indicators with point to potential larger issues. Our deep risk management and safety professionals will help you to build the matrix of criteria to benchmark yourself against, as well as structure the means to test and measure them.
Even with insurance captives, you buy insurance to pay your unexpected claims. Since it’s common for business owners to mix business assets, property, vehicles and investments with personal ones, oversights often occur under traditional insurance arrangements. In addition to our Risk Assessment helping you to become a safer, more productive and profitable company, the assessment provides us with unique insight into your operations, and both your business and personal world. Through our Coverage Analysis, we will make sure that your business and personal insurance protection meets your needs.
Captive Audits
If you are already in a single parent captive, or group or association captive, we can perform a deep analysis of your captive and your overall safety performance. Using benchmarks, we can help you determine if the captive is actually benefiting you or not, and if there are other factors that need to be addressed to help you to improve your insurance captive performance.
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