Why Would My Business Need Captive Insurance?

Managing risks effectively is crucial for long-term success in today’s complex business environment. One innovative approach that many companies are exploring is captive insurance. However, while often an attractive option, establishing and maintaining these arrangements can be complicated and may require the assistance of a knowledgeable and experienced professional, such as those at Clearwater Partners.

What Is Captive Insurance?

Captive insurance is where a group of insureds (e.g., a business or businesses) creates an insurance subsidiary to cover their risks; alternatively, some captive insurers are third parties and unrelated to the insured group. Unlike traditional insurance, where businesses pay premiums to third-party insurers, a pure captive insurance company may be owned and controlled by the insured business. This allows the parent company to tailor insurance policies to its specific needs, manage claims more efficiently and potentially reduce costs through pre-tax premiums.

Captive insurance can take various forms, including single-parent captives, group captives and sponsored captives (e.g., third parties). Each type offers different benefits and structures, but the core idea remains the same: providing a customized risk management solution that aligns closely with the insureds’ unique risk profiles.

How Can Captive Insurance Help My Business?

There are several reasons why a business might consider setting up a captive insurance company or partnering with a sponsored captive. Consider the following potential benefits:

• Cost savings—Captive insurance may help businesses save on their premiums and administrative costs.
• Customization—Traditional insurance policies may not always fit a company’s specific needs. Captive insurance allows businesses to design policies that may address their unique risks and requirements.
• Improved risk management—With greater control over claims and underwriting, businesses can implement more effective risk management strategies, potentially leading to fewer losses and better overall financial stability.
• Tax benefits—In some jurisdictions, including Florida, captive insurance companies might enjoy favorable tax treatment.
• Access to reinsurance markets—Captives can access reinsurance markets directly, often leading to more favorable terms.

We’re Here to Help

Contact Clearwater Partners in Tampa, FL, today to learn more about captive insurance and ensure your business has the right coverage.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.