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.

Outsourcing, Captives, and BOTs, Oh My!

The Challenge:

Skills are critical, capacity is needed, costs are important, but what’s right for your business? There are different models out there that can provide strategic or tactical resources to your company. Depending on your objectives, one model can provide a much better value to your business than others.

So, where should you begin? The first place is get clear on your objectives and desired results. Are you trying to fill skill shortages, improve your capacity, improve your cost base, or all three? Are the resources you seeking part of the core competency you bring to the market? By thinking of these questions as you review the options, the answer will become clear.

Captive or Hybrid:

If the need is strategic and impacts your core competency, it is important that you maintain control over the resources. Partnering with another company may be viable, but you should not partner with another company if it has the same core competency as you. The reason, you invite a possible competitor into your business and customer base.

So what is the alternative? A captive or hybrid captive operations allows you to select and manage a team that will add to your core competency and maintain control. In many if not all respects, the staff are your employees, managed by you.

Hybrid captive models take away many of the traditional risks of going to another country A hybrid model provides the recruiting of talent and other human resource management services, while at a lower cost than an outsourcer or BOT arrangement.

Hybrid captive services include locating or providing facilities and managing them. Often, there is no lease commitment, reducing the risk of being tied to a long term rental agreement. The model typically provide an option to go to a full captive arrangement, setting up your own legal entity, your own lease or purchase of facilities, and the transfer of all employees as part of the process for a fee.


If the need is not strategic or it is not part of the core competency of your business, outsourcing may provide a very good alternative. A good example where this has worked for many companies is marketing. Marketing is important to your business, but for many companies, it may not be a core competency or skill within your company. Finding a strong partner could have a very positive impact to your business while not putting your core business, competency or customer base as risk.

Typically, an outsourcer has staff on hand or bench. This provides both a benefit and a cost to you since you pay them to have and maintain extra resources. The model typically does not allow you to have control over which personnel will be assigned to you or how long they will stay working with you.

Like a hybrid captive model, outsourcing does provide the advantages of not having to deal with the human resource risks such as employment laws, benefits, hiring, and firing of employees. It also does not require the need to directly lease or own facilities as all these costs are part of the outsourcer’s fees.


If the need is more strategic and the desire is to postpone the management of a team, in theory a BOT may provide a good solution. A BOT is a build, operate, and transfer operation. In many respects, a BOT is an outsourcing relationship, with the intent to transfer the operation as some future time. The idea is to provide you with a choice of the team you will have working with you. It is worth noting that in a very high percentage of the time, the transfer never takes place.

In the case of BOT’s, there are typically more risks that are part of the model. Depending on the approach, you may be required to sign up for facility leases, facilities management and other services.


So what is the right choice? It comes back to your needs and objectives. If it is non-strategic or tactical, outsourcing may be a good option. If it is strategic and part of your core competency, a hybrid or captive is the best choice. If it is something in between, a BOT may provide a good alternative.

In all cases, it is important to understand that it will take time and commitment from your team. Using global resources can fill skill shortages, provide capacity, and even lower costs, but it does not come without effort.