Captive coverage is alternative insurance coverage for a business or organization. It is treated like a traditional insurance policy, but it is economically advantageous to both the insured and the underwriter. Captive insurance allows the insured to have greater control over their risk exposure and cost of coverage, while also providing access to additional services and expertise not available from traditional carriers.
Captive coverages are often used by companies with large commercial or personal lines exposures that want more control over their risk management or are seeking specialty coverage not available from traditional carriers. Captive coverages can also be used as a way to transfer risks between entities within an organization — either at the same level of ownership or within a group of affiliated companies — or as an investment vehicle.
The most common form of captive coverage is a single-parent captive, which is owned solely by one entity (typically an individual or small group) and insures its own assets with no outside shareholders. Other forms include multi-parent captives (where multiple entities own part or all of a single-parent structure) and foreign captives (where the parent company is located outside of North America).
There are various reasons why it is a more viable option than a traditional policy.
- A captive insurance company insures risks that are traditionally uninsurable.
- Captive coverage allows companies to cover risks that can’t be insured elsewhere.
- It lowers premium costs by reducing the need for third-party risk underwriters.
- It offers a new revenue stream by allowing captives to provide their services to other companies, making it an investment opportunity for the host organization.
Captive coverage may be one of the best long-term insurance options for businesses. One last thought: make sure that your business is prepared for any eventuality by taking the time to determine what your needs are, and how much insurance coverage will be best suited for these needs.
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