Captive Insurance Is A Smart Money Saving Business Option

Captive insurance is provided by a company that has been formed by a larger parent company specifically to care for risk management needs. This sort of insurance is not given to the public, but instead serves as an alternative risk management solution for companies who do not want to use traditional insurance. Large and small businesses alike stand to benefit financially and otherwise by using captive manager to handle their risk management in house.

A few companies have found that the costs of purchasing an insurance policy actually outweigh their potential losses. Forming captive manager companies permits a business to notably reduce its spending on insurance policies. Insurance rates are calculated using the financial risks of a company, but if one business has much less risk than another in its industry, it may wind up paying more than is necessary simply because of insurance company policies. They also have to add to premiums and rates in order to make up for overhead costs and make a profit. This pricing inefficiency does not occur with the agencies. Captive agencies are able to make operating policies that are not full of the legal red tape that make most insurance policies so hard to deal with.

Captive insurance arrangements must come under the requirements of contract, insurance, and tax laws. For example, if an established business forms a sister company for use as a captive manager company, the two must be completely separate in legal and tax terms. The captive company must be handled as an insurance company in order for the insured to claim deductibles for their payments on their taxes.

There are several different types of captive insurance agencies. When a single parent captive agency is formed, it sells its policies only to its parent company. An association captive company is created by several different companies in an industry; the insurance they provide benefits their members. Normal insurance companies can also protect themselves from the risk of many clients simultaneously demanding huge compensation payments. To care for this financial risk, they form their own agency captives. If an insurance company has enormous losses, they can share those losses with their subsidiary captive agency.

Captive insurance can allow a company to form a strong risk management plan without requiring them to pay exorbitant rates to insurance companies. These subsidiary companies make possible insurance for employee benefits, product liability, physical property damage, professional indemnity, and more.

Captive Insurance Companies Offer Both Commercial and Tax Benefits

Engrossed indemnity companies have been a popular tax and business planning tool since many years. Earlier, only multinational firms used engrossed indemnity companies, but that concept has changed now. Today, a wide range of businesses use them. An engrossed indemnity company funds for corporate groups in the form of workers’ compensations, employees’ benefits, third-party liabilities, product recall, extended warranties, and so on. An engrossed indemnity firm saves cost on insurance too. There are several costs saving tools worldwide that range from risk management to claims processing activities.

Loss deductions for a corporate group

An engrossed insurance company comes under the IRS (Internal Revenue Service) and case law. It provides tax benefits in the form of tax deductions. Before making the payments to the claimant taxpayers generally cannot deduct the losses, it means before the loss has actually produced. A engrossed indemnity company can get the loss deduction for both reported and unreported losses.

Captive insurance coverage advantages

An engrossed indemnity company can modify its policy and coverage to meet your risk management related requirements. It is easily available, stable, and cost-effective for your broad business coverage as compared to other traditional indemnity companies.

Captive insurance claims payment

An engrossed insurance company offers lesser formalities when it comes to managing loss claims. The relationship of a claimant with a engrossed indemnity company is less formal than a traditional insurance company.

Captive insurance provides you full control

An engrossed insurance company provides you complete control. You can hold all the stocks and handle all the bank accounts on your own. It can also help you get better control on the losses by giving you a carrier and the required resources to classify, calculate, and handle the costs.

Captive increases guaranteed profits and investment income

The amount of premiums you pay to the engrossed indemnity companies can create the financial potential of your company. It also enhances surplus. If the engrossed offers good claims, it can produce a remarkable sum of guaranteed profit for the captive owners.

Captive policy company generates new profit

When engrossed policy companies were started, initially their aim was to reduce the cost of commercial property and casualty risks policy. Captive’s parent corporation or the stockholders used to own most of the businesses. Ultimately, a number of captive policy companies had decided to significantly raise the amount of unrelated risks. This was an attempt to earn profit from unrelated risk underwrite opportunities.

Captive policy company produces new risk financing alternatives

You can take advantage of a broad range of risk financing alternatives by owning a engrossed policy company. This also includes risk secularization programs. All such financing options are only available with a engrossed policy company.

Should I Be A Captive or Non Captive Agent

When you enter into the Insurance sales field you have to ask yourself this question at some time in your career; should I be a captive or non- captive agent?

A captive agent is one who works for one company and agrees to only sell their products. A non captive agent can represent more than one company and offer a variety of products. There are agents who have experienced success using both methods. You have to decide for yourself which direction you want to take your business in.

A captive agent will sign on with a company, go through their training and become proficient in selling their products. Many times captive companies focus on a particular niche in the marketplace although they may have a menu of products customers can choose from. Some of these companies even offer their agents a beginning salary or guarantee to get them going in the Insurance field.

There are advantages to the captive agent. You get to focus on and become very proficient with how your company works. You tend to work with the same support staff, underwriters and agents. You have a manager you report to. Many times you even have regular hours to go into the office each week.

Disadvantages include; you have to focus only on your company’s products. If your company doesn’t offer universal life products, you can’t sell them. It’s very hard as a captive agent to deal with every client you come across because you are limited in your product offerings. It’s like being in the restaurant business; nobody goes to Kentucky Fried Chicken for tacos. Managers can sometimes forget that you are not really employees but independent contractors and make requirements of you that only a W-2 employee has to follow. Finally, your commissions may be less in a captive contract.

There are advantages to being a non captive agent. You get to create your own menu of products you want to offer to your clients. You can get larger shares of the commissions because you are not a real expense to the insurance company. They can afford to give you more because you only make money when you send them business. You can determine which clients in the marketplace you want to focus on and contract with those companies to offer their products. You don’t have expected office hours.

Disadvantages include; you don’t have a manager to support you in your business. Many times you will feel you are on your own and you would be right. You may not have the proper contracts in place to service your clients or you may have the wrong contracts (products you don’t sell anyway).

It will all depend on how you want to structure your business. Either option of captive or non captive can work.

Find out what fits best for you.