WHY FORM A CAPTIVE ?

The commercial insurance industry can be slow in meeting new needs and embracing new concepts. For many captive owners, increased awareness of risk management problems has paid off in loss records that are substantially lower than industry average, especially those used to set commercial rates. Many corporations, groups and other organizations have formed their own insurance subsidiaries (i.e. captives), rather than being penalized by higher premiums based on the poor loss experience of other companies in their respective industries, and thus have gained many risk management and financial benefits.

Benefits of forming a Captive
 

Underwriting Profit With a captive solution, the underwriting profit goes directly to the captive and  thus benefits the Owner, not the commercial insurance carriers. Improved cash flow and investment return By controlling the captive’s premium and loss reserves, substantial investment income can be earned by the captive. This income would otherwise go to commercial carriers. Reduced overall cost of coverage Premiums paid to the captive are no longer used to subsidize the commercial carriers’ overheads and profits. This contributes to a lower premium. Access to the reinsurance market A captive provides an entirely new avenue through which to obtain wholesale premium quotes not offered by primary insurance carriers. Unbundled support service From the owners’ perspective, with a captive it is possible to pick and choose the optimum combination of claims settlement, policy issuance, reinsurance protection and loss control. Access to otherwise unaffordable or unavailable coverage A captive has the ability to provide tailor-made policies and coverage – a feature that is often difficult or impossible to obtain from the commercial market. Co-ordination of global exposure The use of a Captive can be complementary to the centralization and efficient control of a multi-national insurance program.

The captive insurance mechanism is based on a sound concept and has a proven track record. The implementation and daily administration of this formalized self-insurance vehicle requires in-depth knowledge and experience. Certain major corporations may have the know-how and resources to administer a captive internally, but most prefer to outsource their captive management to a professional service provider specialized in this area, such as QUEST.