Group captive insurance programs offer many important benefits to those who can qualify. A group captive is a perfect choice for firms with a lower-than-average loss ratio and a desire to place importance on safety and controlling losses.
Some of the many benefits of a group captive are:
- Lower net insurance costs
- Insulation from market fluctuations
- Long term stability
- Predictability of outcome
- Transparency of operations
- Improved risk control and safety
- Enhanced profit potential
- Increased influence over claims management
- Risk coverage that your business actually needs
- More time to focus on the needs of your business
Differences Between a Typical Policy and Group Captive Insurance
One of the biggest benefits of being part of a captive insurance program is the payment of dividends to members. A dividend is the funds the group captive has left after all financial obligations have been met. Let’s review further by identifying the differences between commercial insurance and a group captive insurance company.
With commercial insurance, your business pays a premium to the insurance company. With that money, the insurer pays all expenses and claims subject to the policy terms.
Expenses can include agent commissions, underwriting expenses, claims costs, legal fees, reserves, profit, and operational expenses. If at the end of the year, the insurer operates with a profit, the profit goes to the shareholders in the form of dividends.
Group Captive Programs
A group captive operates much the same way as commercial insurance does, except any profits are returned to its members in the form of dividends.
The Group Captive Value Proposition
Each captive is set up differently, but the outcome goal is the same. Captives are designed to offer competitive premiums, maintain low expenses, provide claims and loss control services, and offer member influence in the group captive operations
Group captives manage premiums and surplus in a number of ways:
Management of earned losses with reserves
This allows for the stability of the group captive. Claim reserves are set at what the potential loss may be.
Dividends are paid out over time
Most group captives pay out dividends over a multi-year period. This allows the group to account for open claims reserves that may change over time.
Group captives hire actuaries to help them set and evaluate all reserves and to establish appropriate premiums based on each member’s actual loss expenses.
Above average loss ratios
Group captives attract the best of the best. This gives group captives an advantage over traditional insurance. With traditional insurance, the better companies help subsidize the losses of the below average risks.
Properly formed group captives adhere to IRS tax laws
A properly run group captive guides the members through the process and to ensure compliance with all U.S. regulations.
Group Dividends Defined
Dividends represent the distribution of captive profits to shareholders. Members receive the underwriting profit based on their own loss experience. While all members have equal ownership, dividends vary depending on the individual premium size and claims performance.
How Are Dividends Processed in a Group Captive?
Group captives pay out dividends when there is profit in the captive.
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Group captive balance sheets look much like any other insurance company. Most group captives will pay dividends from a policy period over a few years as claims develop. The members rely on the guidance of the actuarial team and captive managers to pay on a schedule that ensures the long-term financial strength of the company.
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Leap | Carpenter | Kemps Insurance Agency Can Help
Do you want to learn more about group captive insurance programs and begin the process of evaluating if a captive is right for your company? Talk with an expert group captive agent at Leap | Carpenter | Kemps to find out.