Is Group Captive Insurance Right for Your Business?

A group captive insurance company is formed by its members for the benefit of its members. Because the members are the owners, they have an influence on the decisions made by the captive.

A group captive’s main objective is to minimize the cost of business insurance for each of its member companies.

Each member company has the power to control its own costs by maintaining a safe work environment and reducing claims costs.

The benefits of group captive insurance go beyond controlling members’ insurance costs. Member companies have influence in the claims process, resulting in faster claims settlement and overall lower net claims cost.

Group captive members also benefit from full disclosure on how the captive is operated, including financial reporting, the issuance of policies, claims paid, and how risk is being managed by the members.

With all these benefits, you may be thinking of rushing out to join a group captive. First, there are a few things you should know about what types of businesses are ideal for group captives.

Businesses that are strong candidates for group captive insurance have the following characteristics:

Premiums Exceeding $150,000 Annually 

If your business is a mid-to-large-sized company that pays a minimum of $150,000 a year in premiums for workers’ compensation, or combined workers' compensation, general liability, and automobile insurance, a group captive may be a good fit.

A group captive won’t make financial sense for companies that pay less.

Loss History That's Better Than Average 

To be a good candidate for a group captive, your business should have losses that are more favorable than similar businesses in your industry over the most recent five-year period.

This means that, on average, your business should not have paid out in claims more than 40% of the total premiums it pays in each year for the past five years. However, a company that has experienced a shock loss may still be a good candidate depending on the circumstances of the loss.

Financially Strong

To be a member candidate for a group captive, your business needs to be financially strong. This gives assurance to the other members that you can meet your financial obligations within the group.

Every prospective and current member of a group captive is financially vetted each year. Additionally, each member is required to put up collateral to cover the first few years in the captive.

The collateral obligation is a fixed percentage of annual premium as established by the members in the group.

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You may be wondering if all member companies within a group captive need to be in the same industry.

Some industries have unique safety and risk management needs that are better suited to a group formed exclusively with members from that industry. This is referred to as a homogeneous group captive.

For the vast majority of businesses, specialized risk management and safety services are not as important. These companies can benefit from a heterogeneous captive that includes members from different industries.

The spread of risk by industry benefits the group in terms of lower reinsurance costs from carriers that prefer a more blended risk profile.

Regardless of whether it’s a homogeneous or heterogeneous captive, all members must maintain a low- or medium-risk profile through effective risk management strategies, as well as the exchange of ideas and best practices shared among the members and through the group captive management team.

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Leap | Carpenter | Kemps Insurance Agency Can Help

Certain businesses are stronger candidates for a group captive than others. Want to learn more and know if a group captive is right for you and your company? Talk with an expert group captive agent at Leap | Carpenter | Kemps to find out.