At Venture Captive Management, we’re often asked, “What industries are the best for building a captive insurance program?”
The best captive insurance industries are the ones where:
the company’s operations can be managed to a profit
the company can meet the IRS guidelines for risk transfer/risk distribution
the insurance premium for any one line of business is $500,000 or greater
Any operating entity—for-profit or not-for-profit—that uses solid management principles is going to be as successful at their alternative risk funding company.
Originally, business owners looked to create their own insurance companies when either the cost of buying insurance in the traditional markets became prohibitive, or desired coverages were not available for any price in the traditional market. Alternative venues have been enhancing their domiciles so that currently, any company that is paying less than 60% of their premium in claims and is large enough to meet the economies of scale is an excellent candidate for an alternative insurance.
Best Captive Insurance Industries
Still, there are industries that, by their very nature, lend themselves to alternatives. Any business with a protracted period of time from when the accident happens until a claim is made is a good candidate. It’s the uncertainty that makes an alternative risk funding structure attractive. This is true of all professional liability exposures including:
Directors & Officers
Architects and Engineers
Captive Insurance Industries with Risks
Another class of business that is well-served by creating their own captive insurance structure is businesses where there is a significant risk of a catastrophic loss. The alternative risk fund structure allows the business owner to put money aside for the risk, reinsure part of the risk, and make investment income on the insurance premium until funds are required for payment. These kinds of exposures include the following:
Kidnap and Ransom
Large Property Hazards
Business Interruption and Contingent Business Interruption
Non-Profit Captive Insurance Industries
The things that are true for for-profit businesses are also true for not-for-profit businesses. Many not-for-profit businesses are run by outside Boards of Directors who are concerned with unpredictable revenues. By creating an alternative to commercial insurance, the insurance costs will become more stable, and profits from the alternative structure can help fund projects. Eligible not-for-profits include the following:
Finally, many businesses are not aware that under the Affordable Care Act, employee benefits coverage can be self-insured. Captive structures also work well for any employer with more than 150 enrollees.
At VCM, we make it our business to understand your business. We partner with our clients so we understand your risk. It is our mission to provide creative insurance solutions. Contact us today to see if your business is a good fit for captive insurance management.