A Captive Insurance Company (captive or CIC) is a property and casualty insurance company established to provide coverage primarily for a parent company. It can be a valuable risk management tool which allows businesses to more effectively manage corporate risks of all kinds. A captive insurance company may be established to provide unique coverage or coverage not available through commercial property and casualty insurance companies.
Coverage underwritten through and insured by a captive insurance company is often best utilized as a supplement to existing coverage, providing a more effective total risk management program for the business owner. The captive insurance arrangement may also be implemented in order to allow the captive owner to capture overhead, profit and other capital which would normally transfer to another insurance carrier. The risk management consultant will review existing policies, identify gaps in coverage and recommend potential areas of exposure. Once the desired insurance risks have been identified, an actuarial company will be retained to determine an appropriate premium for the risks assumed by the captive, which will in turn provide coverage for the named risks.
In these uncertain times, the successful business owner faces the pressure of multiple risks in their daily operations. Examples of these risks include: loss of a business license or professional license, adverse financial impact of regulatory or legislative changes, loss of a key vendor or major client, loss of franchise license or lease, environmental losses, regulatory inspection failure, etc. Small to mid-size privately held businesses can benefit from risk management tools that can help them more effectively manage such enterprise risks and control their insurance costs. To that end, the business owner should consider establishing their own Captive Insurance Company. If properly structured and underwritten, premiums paid by the parent operating company to it’s captive insurance company for property and casualty cover