Jan 30, 2024The Advantages of a Work Comp Captive in Retail
How Insurance Captives Can Aid in Risk Management
Large corporations have enjoyed a lot of benefits from operating their own captive insurance companies. These captive insurance programs were established to supply coverage where insurance wasn’t available or if it was overpriced. These captive insurance subsidiaries provided risk management benefits that were primary and provided tax advantages.
In recent years, smaller businesses have also learned about the benefits of captive insurance in risk management, including those usually associated with larger companies and tax planning opportunities. A properly structured and managed captive insurance company should be able to provide the help in tax and non-tax benefits as well as provide some breaks in risk management.
Reduction of the Costs of Risk Management
The price of captive insurance coverage purchased in the conventional/traditional market usually reflects a significant price markup to pay for the insurer’s acquisition costs. These typically include marketing and broker commissions. Also, price markups can be reflected in administration, overhead and profit to the insurer. Premiums are paid in advance and represent a lost chance to earn back investment income.
Getting captive insurance cannot completely eliminate these costs, but it can reduce them significantly. The extent of the reductions will usually depend on the captive’s own loss experience, the claims handling costs and the level to which the captive promotes cost consciousness and efficiency in the parent.
Business Owners and Risk Management
Business owners know that there are a lot of different kinds of risks that could negatively impact their business. It doesn’t matter if they are potential risks or cannot be avoided, risks play a role in obtaining captive insurance. Captive insurance companies should be able to provide a plan for risks by insuring the business while also cutting down on the out-of-pocket expenses and creating another source of income.
When obtaining captive insurance for risk management, this sets up the risk management program for the business and puts aside funding for potential future claims. These claims are paid to the captive.
Reduce Overall Costs
Captive insurance represents an option for many businesses and groups that want to take financial control and manage risks by underwriting their own insurance rather than paying premiums as mentioned above. These premiums are paid to third-party insurers. Besides reducing costs in risk management, having captive insurance will also help:
- Provide coverage tailor-fit to a company’s needs
- Provide greater control over claims
- Help investment income to fund losses
- Increase coverage and capacity
- Reduce operating costs
- Give incentives for loss control
- Provide alternatives to the costly practice of trading money with underwriters
- Give smaller deductibles for operating units
About Tangram Insurance Services
Located across the Golden Gate Bridge, just outside of San Francisco, Tangram is a full-service Managing General Underwriter and Program Manager offering specialty programs. We focus on industry-relevant coverage, competitive pricing, and practical business and risk management solutions for your clients. Since we are not all things to all people, we make sure to create outstanding custom-built solutions that matter to those businesses, and the brokers who serve those industries. Contact us at (888) 744-9810.