Frequently Asked Questions: Captive Insurance
What is a captive insurance company?
A limited purpose in-house self-insurance vehicle established with the specific objective of financing risks emanating from their parent group or groups, although they sometimes also insure some of the risks of the parent company's customers. Captive insurance often represent commercial, economic and tax advantages due to the reductions on costs they help create, the ease for insurance risk management and the flexibility for cash flows they generate and may provide coverage of risks which are neither available nor offered in the traditional insurance market at reasonable prices.
What type of company can benefit from captive insurance?
Captive Insurance can suit a range of companies. Large corporate structures often benefit from creating a wholly-owned captive, or “pure captive” to insure risks germane to the organization’s business needs. Smaller companies can benefit from captive insurance planning by aligning with other similarly situated companies and participating in a group captive, association or sponsored captive insurance company.
When does a captive insurance company become cost effective?
As with any new business structure, there are certain administrative costs which may create a threshold for participation. Typically, the minimum corporate premiums required to make a pure captive cost effective would be approximately €750,000. To participate in a group captive, the minimum is typically €200,000.
What are the benefits of a captive insurance company?
The financial benefits of captive insurance are significant. Premiums tend to be lower simply because, with commercial insurance, premiums are padded to cover the insurance company's own profit margins and overhead costs. With captive insurance, companies are not attempting to make a profit, but simply to provide themselves with low cost insurance coverage. Captive insurance is more flexible than traditional insurance, because the company can adjust the proportion of assumption of risk or the amount of reinsurance depending on how soft or hard the market is.
Are there more types of captive insurance companies?
Yes there are several forms of captive insurance companies, each form has its own unique purpose but all provide the same function. There is the Single Parent Captive who is formed primarily to insure the risks of its non-insurance parent or affiliates, the Group Captive is owned by a group of companies and is created to provide a vehicle to meet a common insurance need, the Association Captive - is owned by a trade, industry or service group for the benefit of its members, the Agency Captive - is owned by an insurance agency or brokerage firm so they may reinsure a portion of their clients risks through that company and a Rent-a-Captive which provides for a fee 'captive' facilities to others that are too small to justify establishing their own captive.
