GROUP CAPTIVE BENEFITS
Lower Premiums Over Time
Group captive insurance brings together the best run businesses to form an insurance company that exclusively manages the risks of its owners. Since only businesses that are well-run and safety-focused qualify to join the group captive, the collective risk is much lower than in the general insurance pool. As member businesses are established in the captive, their premiums go down. Over time most members experience very significant premium reductions.
Additionally, premiums for each member business are determined by actuaries based solely on their individual claims history, not by industry averages or insurance company calculations. Again, members of the group captive have better claims histories than their industry pools, therefore premiums based solely on their history results in lower costs. And because businesses in a captive tend to improve their claims performance year after year, the compounding of low claims years can produce rates that are dramatically lower than the industry average.
Return of Unused Premiums
About 60% of each captive members’ premiums are isolated in their own asset account which is used to cover claims. Each year that the claims fund is not depleted, the remaining funds are reserved and invested. After three to five years in the asset account, the funds—both unused premiums and any investment income earned—can be returned to the business owner through a dividends payment. While the captive board determines the amount of dividends and when they will be paid, all accumulated funds in an individual asset account are eventually returned to the business owner.
The combination of shrinking premiums and the return of unused premiums means the overall cost to insure a business is dramatically less than with traditional insurance products.
Greater Control Over Costs
In the traditional insurance market, a business has little direct control over the annual cost of their insurance. The opposite is the case in a group captive insurance program where a business’ effort to reduce claims directly results in lower insurance premiums. Therefore, keeping claims to a minimum is the focus in a group captive. For maximum benefit, businesses enhance safety programs, streamline claims management, strengthen claims investigations, and raise focus on corporate culture. Each of these is proven to lower claims, which lowers premiums.
Business owners understand that being able to predict annual expenses allows for more accurate budgeting and reduces the need for financial reserves to cover unanticipated expenses. Historically, annual insurance premiums have been one of the line items that are very difficult to project as insurance carriers have often raised rates dramatically year over year with no explanation.
In a group captive, each year actuaries determine premiums and outline each member’s best and worst case scenario. There are never any surprises. And group captive insurance stabilizes the annual renewal process. Since premiums are directly based on the previous year’s claims record, captive members know with near certainty what their premiums will cost each year.
Since each member business is an owner of the captive insurance company, there is complete transparency. Every owner knows how every dollar of their premiums are being used and how every other members’ premiums are used as well. All members have access to all company financial information. They can see how much is spent to pay claims, issue policies, provide claims management and loss control services, secure reinsurance, as well as cover general O&M and broker commissions.
Greater Control Over Claims Management
Captive insurance provides member businesses much greater control over their claims management. If a captive member is concerned about the legitimacy of a claim, they can call for an investigation. Conversely, if they would like it closed and settled quickly, that is what occurs. With advice from the Captive Management Company, the member’s attorney and insurance broker, the captive member makes these decisions in their best interest.