Captive insurance is a separate insurance company established by its parent organization. It aims to fulfill the purpose of insuring its parent company as a separate entity from huge losses, but it is treated as a group where the owners of the parent company are also the owner of its captive insurance group.
The captive is a licensed entity, which acts in the obedience of insurance regulatory authorities like every other insurance to validate its position.
Significance of Captive Insurance
Having a captive is a valuable tool for businesses to manage their corporate risk efficiently and focus on their progress competitively. It helps to ease the burdens and worries by covering high severity risks such as casualties and properties for its owners.
Furthermore, its owners benefit monetarily, directly through captive’s operations as well as its underwriting processes which allow further revenue generations.
Why Is A Captive Insurance Needed?
There are several benefits that an owner can enjoy from having a captive. The advantages include:
It saves additional costs and changes the thinking of depending upon other commercial insurance. It makes a habit of retaining risk and being self-sufficient as well as creating their own opportunities.
⮚ Specified Coverages
You can come up with a unique or uncommon need, which can be hard to find as coverages from other insurance companies. The captive insurance customizes their own insurance programs which are specified to their requirements, and they are in-line with the insurance regulatory authorities.
For example, Talisman Casualty insurance company provider of surety program brings a specified and creative risk managing services through coverages like surety.
⮚ Covers Unavailable Risks
Certain risks where insurance coverages are not available or unheard of can be covered for the ease of the owners. This might include insurance of loss of business license, trade permits, labor strikes, and even legal coverage against false advertisements.
⮚ Tax Reduction
Captives enjoy a significant tax advantage. The parent company can get a tax deduction or omission as they might not have to pay tax over the premiums of its captive. It also opens opportunities like income tax savings for both the parent and the captive company, which helps to maximize revenues.
⮚ Claims Handling
Captive insurance provides a luxury of establishing their own claims policies, which helps to assist in easing the time taken to pay claims and its process.
⮚ Opens New Earning Opportunities
The captive can also look after/provide coverage and insurances of its parent company’s core customers, which highly likely increases customer retention and even increases new customer base.
⮚ Saves Cost
The owners of the captive keep 100% of the underwriting profits and eliminates a large chunk of commercial insurance premium costs.
Having the need to establish a captive depends upon the necessity of the business and its operational specifications of what risk they might be troubled with. Depending upon the feasibility, captive insurance brings in a number of advantages.