Top 10 Reasons to Place Your Insurance Through a Captive – Reasons #3, #4 & #5

To re-cap our previous posts, Reasons #1 and #2 are as follows (see our blogs from July and September of 2016):

Reason #1 – Claims Professionals that work for you!

Reason #2 – Safety Professionals whose job it is to be your “eyes and ears”.

So now, more reasons (#3, #4 and #5):

Reason #3 – What you don’t spend on claims comes back to you.

Keep in mind that the claims reserves are your money. An actuary for the captive has made an educated estimate on expected claims for the year – both from the standpoint of severity as well as frequency. With a solid commitment to safety and loss control that starts from very top management and becomes an important part of your business culture, you can generally outperform (i.e., have fewer claims) than the expected losses estimated by the actuary. Also, keep in mind your calculation for the captive is based on “paid” claims, not “reserved” claims. Claims are only counted against your experience when they are dollars out the door (paid claims) – not an estimate of what may be paid out in the future (reserves). In essence, a commitment to controlling losses translates to money being paid into your equity account.

Reason #4 – Rates are tied to your experience.

In an insurance company based program, your rates are not only tied to your experience, they are also tied to the experience of all the business they write for your industry group. So if you are a contract cleaning company, the rates the insurance carrier provides to you are, in part, based on their experience with all the contractors of that type that they write. That spans the best and worst in class. In a captive, your rates are directly tied to your experience. This is an important component in controlling your costs.

Reason #5 – A Captive approach supports Estate/Perpetuation planning.

Imagine it is five years down the road since you began participating in a captive. You have had a successful run, and you have money that has been transferred to your equity account. You are at the point (and maybe even beginning with year four) that money will be coming back to your firm. Those funds can be used for any purpose you deem appropriate – including the purchase of stock. Also, in a group captive, you purchase a preferred share. That share can be transferred to whomever you deem you want to own it. It becomes another piece of wealth transfer.

There are five more reasons to follow. In the meantime, please give your EC&S representative a call to discuss the potential benefits a captive may have for your firm.

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