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Exploring the Advantages of Group Captives

As an alternative to the traditional business insurance market, captive insurance provides numerous benefits to companies. Self-funded insurance entities – the captives wholly owned by businesses – allow for greater cost management and claims control along with providing significant tax advantages. Not every company is large enough or financially able to form its own captive insurance entity. In these cases, so-called “group captives” may be a viable solution. In this guide, we will explore the role of group captives and their benefits in underwriting business risks.

Group Captives: An Overview

At the first part of the 20th century, the concept of captive insurance was developed. Traditionally, captives were owned by a single parent company and provided insurance and risk management services for the parent. The group captive operates in a similar fashion, but instead of a single parent, the ownership is comprised of a group of individuals or business entities. There are two primary forms of group captives:

Homogenous group captives – where the owners are insureds in the same or similar industry niche.

Heterogenous group captives – where insureds come from entirely different industry sectors to own the captive.

Group captives are ideal for business owners who may not be able to afford the expenses of setting up their own captive or that may not have the premium volumes necessary for captive insurance to make sense. By pooling resources with business owners in the same sector or with different sectors, groups not only share their risks, but also profits and losses. In general, the group’s collective risks are lower than that found in the traditional insurance markets.

Why Choose a Group Captive?

Insurance markets around the world continue to harden, both by raising premium rates and by eliminating coverages. In some cases, traditional insurers are withdrawing altogether from certain industries. Captive insurance stands as a solution for insurance that is either too expensive or unobtainable at any cost.

Group captives offer all the advantages of a larger single-parent captive without the steep startup costs. The smaller companies joining together also pool their risks, which helps to spread the impact of unanticipated losses in years of high claims volume or severity. This alone makes the group captive an attractive choice for business owners who wish to effectively manage their risk exposures while saving costs.

Benefits of a Group Captive

Just like single-parent captives, group captive insurance entities enjoy several distinct benefits or advantages. These include:

  • Provide insureds (the group’s owners) with investment income paid to support the group’s obligations.
  • Reduce or eliminate the impacts of losses incurred by others outside the group captive program.
  • Stabilizing insurance costs.
  • Provide dividends when losses are lower than anticipated.
  • Give insureds the ability to take on greater risks than they could be remaining in the traditional insurance market.
  • Offering tax advantages, particularly by allowing deductions for premiums paid to the captive.
  • Provide greater control over claims and program management.

It is this last advantage that makes the group captive an enticing prospect. By providing greater claims management control, insureds in the group can spread out or time loss payments and select appropriate counsel. By using third-party claims administrators, the group’s members can enjoy more transparent investigation and resolution of claims, especially when compared to the opaque procedures commercial insurers often use. Finally, improved control can help to reduce the expenses associated with claims and inform risk management strategies, protecting group members from unexpected losses. Group captive insurance serves to provide each group member with a myriad of significant advantages without the potentially expensive and time-consuming process of establishing a standalone insurance entity.

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 (855) 975-4949.