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How to Hire a Captive Insurance Manager

For over a century, businesses of all sizes and across industries have relied on captive insurance. This form of self insurance offers a number of benefits, including insurance coverages not available on the commercial insurance market. captives can be difficult to set up and to maintain, depending on myriad state and federal regulations. Having a dedicated project or captive manager to focus efforts is invaluable. In this guide, we will offer tips on evaluating potential managers for your captive insurance program, helping you to make smart decisions to ensure efficiency and cost effectiveness.

The Basics of Captive Insurance

A captive insurance company is defined as a wholly-owned subsidiary company that provides insurance products and services for its parent. In other words, a company may establish its own insurance company for coverage, giving rise to the term “self-insurance”.  A single-parent captive is owned by one company for insurance purposes, while group or multiple-parent captives pool the risks of multiple business interests. There are even captive insurance models that offer memberships for smaller companies. These are sometimes referred to as “rent-a-captives” or protected cell captives. In each of the captive models, owners or members gain specific advantages, including:

·         Favorable taxation structures.

·         Profit-sharing of premiums in years with lower claim volumes.

·         Specialized coverages not available through traditional insurers.

·         Cost advantages; captive insurance is often less expensive than commercial insurance products.

The Role of the Captive Manager

Formerly reserved for only the largest corporations, captive insurance has become available for smaller businesses in recent years. Setting up a captive insurance entity may be daunting, however, and requires diligence in terms of meeting state and federal regulations. Because of the complexity of establishing and administering a captive, many smaller business owners seek the assistance of a third-party captive manager. Captive managers must be experienced in a wide range of financial, tax, and legal aspects, including:

·         Claims management

·         Regulatory and domiciliary requirements

·         Investment management

·         Insurance pricing and underwriting

·         Actuarial services

·         Tax codes and filings

For companies that do not have an experienced insurance professional on staff, or who may be unable to manage a captive entity on their own, a captive manager is the logical solution for self insuring business risks.

Assessing a Captive Manager: Tips for Success

Business leaders know that due diligence is required to make business decisions. The same holds true for selecting the right manager for your captive insurance entity. These managers may be part of an insurance brokerage or agency or may be third-party service providers. When establishing a captive, the question of domicile is a primary consideration. Business boards of directors may already have identified a specific domicile in which to form the captive. These domiciles typically maintain lists of approved captive managers that may operate within the domicile. These listings are often the first place to look for qualified managers, helping to reduce time spent on recruitment.

The next step in selecting a captive manager is to prepare a request for proposal (RFP). This document must clearly spell out the goals and service needs of the captive’s parent firm. The purpose of the RFP is to establish a relationship with prospective managers; the goal of any firm should be to enter into a long-term relationship that is mutually beneficial for manager and captive entity.

When evaluating prospective managers, consider answers to the following questions:

·         How long has the manager provided captive services to other companies?

·         What is the manager’s experience level in filing tax documents and regulatory reports?

·         Does the parent company’s goals align with the professional work of the captive manager?

·         Does the manager have any unique qualifications that can facilitate a superior partnership?

·         What resources (time or financial) will the manager need to provide services?

·         What is the fee structure of service delivery, and what are the criteria for separation/cancellation of the partnership?

The answers to these questions will influence the relationship between parent company and its captive insurance management team. By evaluating prospective candidates carefully, companies can avoid many of the pitfalls that come with hiring an outside individual to manage captive insurance. With the tips above, the groundwork is laid for a beneficial partnership, allowing businesses to get the most out of their captive insurance endeavors.

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.