Forming a captive insurance company empowers its owners to control all aspects of risk management. With the assistance of their captive manager they control the coverage design, select service providers, and negotiate agreements and transactions. A captive is the perfect funding structure to stabilize and reduce costs while taking on all the risks of operating.
As the captive gains momentum in successful performance the owners can take on more of the organization’s risk and push traditional insurance farther out to further maximize cost savings. The flexibility of a captive makes it possible to cover risks that would be too costly to buy from commercial insurance companies, or not available at any cost.
To illustrate possible savings, consider all the expenses of your typical commercial insurance company: manpower and employee benefits, sales commissions, offices in the tallest buildings in every city they inhabit, equipment, supplies, travel, outsourced services and the dividends that every public corporation must provide. Who pays for all that? Why, the insurance buyers in the form of premiums that must be inflated far beyond the actuarial projections of any covered risk.
The captive owner, on the other hand, pays for none of those commercial companies’ expenses. Actuarially determined premiums are paid into the captive and will accumulate until paid out in claims, moderate company expenses, owners’ dividends or long-term capital gains.
The decision to form a captive can be much more complex than this simple description and should be considered with advice from an experienced captive manager. Taft stands by to provide that counsel with no cost or obligation until a client agreement is effected.