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Captive Insurance in the Transportation Sector

The transportation industry can rightly be described as America’s lifeblood, moving goods and people across the country and keeping commerce flowing. As a vital part of the business landscape, the transportation sector faces numerous risks, including both expected and unforeseen perils. Traditional insurance products may not be sufficient to cover the risks inherent in the industry, and more and more transportation-oriented businesses are turning toward captive insurance as a viable solution. With specialized self-insurance options, transportation companies gain improved flexibility, more appropriate risk coverage, and impressive cost savings when compared to traditional insurance products. Here’s how captive insurance can help the transportation sector.

Rising Costs in Traditional Insurance Solutions

The primary driving factor for the growth of captive insurance in the transportation sector is cost. Rates for traditional insurance have risen steadily and sharply over the past decade, according to a leading insurance business development firm. Those high premium rates are only expected to increase in the coming years. 

Over a one year period from 2013 to 2014, trucking insurance rates rose 11%. The following year (2015), rates rose 29%. On average, over the past five years, insurance premium rates reached nearly 20% in increases. With these rate increases looming over the transportation sector, it is clear that cost-saving alternative solutions are highly desired. 

Several high-profile losses within the trucking sector have led to insurance price increases. In general, traditional insurers have had the experience that trucking risks are not profitable. As a result, many insurers have chosen to leave the transportation market, leaving transportation-oriented businesses like fleet operators and cargo-hauling companies to scramble to find suitable solutions.

Captives to the Rescue

Faced with mounting insurance premium costs and a dwindling traditional market, transportation-oriented businesses have begun to adopt self-insurance options, forming individual or group captives to regain adequate risk coverage. Captive insurance is seen within the sector as a means of controlling expenses; it offers predictability in terms of pricing, unlike the traditional insurance markets, which often employ cyclical pricing practices. By sharing risks, transportation companies can also reduce individual risk exposures. 

There are several other potential advantages and benefits of adopting the captive insurance model in transportation, including:

  • Improved and streamlined claims management
  • Underwriting profit-sharing among captive members in profitable years
  • Improved insurance capacity to counteract the shrinking commercial insurance market
  • More robust risk management tools 

Captive Options for the Transportation Sector

Keeping the many benefits of captive insurance in mind, transportation-oriented business owners should understand that there are several different options available when creating or joining a captive as an insurance solution. Here are several examples to share with clients:

  • Single-parent captives or self-insurance plans are ideal for larger companies with stable records and historically low losses. Under these plans, which may be stand-alone or combined, companies can take an active role in managing their risk programs.
  • Fronted agency captives utilize the services of an agent to combine risk portfolios of members for the purposes of obtaining commercial insurance. This option is good for fleet owner-operators with historically low losses. Alternatively, the captive can operate without the traditional insurance market, and both owner-operators and agents can earn dividends if losses remain low.
  • Risk-retention groups operate by pooling risks, particularly in liability exposures. Taxi and livery service providers are ideal for this captive insurance structure. Under this structure, all insureds are considered owners, which helps to simplify rates.
  • Association captive insurance companies are preferred in situations where traditional insurance may not offer sufficient flexibility for dynamic and unusual transportation risks. Under this model, insureds (owners) pool their risks in a partnership that can include agents who service that particular transportation sector. 

Captive insurance represents a significant and cost-effective alternative to traditional commercial insurance within the transportation industry. This solution is not for every fleet or transportation-oriented business, but it has the potential to help reduce expenses while providing robust insurance coverage and enhanced risk management strategies. For the transportation sector, captives are well worth exploring.

About Caitlin Morgan Captive Services

Caitlin Morgan Captive Services provides clients with captive insurance solutions supported by years of experience in establishing the successful formation and implementation of a wide range of captives. To learn more about how we can help you, please contact us at (317) 575-4440.