If you want to achieve long-term success as a business owner, you must protect your company from risk and liability. But, before you opt for the traditional business insurance route, you should first consider whether there are alternative solutions better suited to meet your specific coverage needs.
For instance, captive insurance—a self-insured plan—could help reduce costs, increase plan flexibility, and provide coverage for significant risks that a traditional provider may not be willing to insure. These opportunities may then impact both your employee recruitment and retention efforts. Reduced costs, plan options, and additional coverages can be very appealing to both job seekers and current employees.
So, how do you know if captives are right for your business? Here are four questions you should ask before tailoring your own self-insured plans.
#1 What is Captive Insurance?
Captives operate outside of a standard commercial insurance framework.
With captives, you don’t pay money to an insurance provider for risk protection. Instead, you either form your own insurance company or join a collective and pay premiums to it. Over time, the premiums fund accumulates and can later be drawn upon to pay out any claims.
Although they operate outside of the purview of the traditional insurance marketplace, captives must still be meticulously structured, managed, and underwritten. According to the CPA Journal: “Captives must carefully abide by all risk shifting, risk distribution, insurance pricing, claims adjudication, and state and federal compliance.”
#2 Do You Have a Robust Risk Management Policy In Place?
One of the primary benefits of captive insurance is that it can save you money. But, for that, you must satisfy two conditions:
- Install a robust risk management policy
- Demonstrate a strong claims history
If those conditions are met, you can expect to save thanks to the way premiums are managed.
With a traditional insurance policy, you’ll never see a cent of the money paid to premiums unless you experience a demonstrable loss. But with a captive policy, the premiums fund is yours to control.
#3 Do You Have Coverage Gaps In Your Plan?
A captive plan isn’t necessarily a one-to-one substitute for traditional insurance. In some cases, it can be used to supplement your existing employee health insurance policy by filling coverage gaps.
A captive plan is particularly useful if you face unique risks or hazards that a standard provider won’t or can’t cover. Or, it can help cover major risks that would exceed the capacity of a traditional insurer, such as liabilities surrounding:
- Supply chain
- Cyber security
- Reputation
- Product recall
- Brand rehabilitation
In this situation, you’d still need to meet with actuaries to establish a fair price for the risk. However, this border coverage would provide much greater flexibility and protection compared to a traditional model.
#4 Do You Want to Improve Cash Flow?
Of course, you do. What business doesn’t want to improve its cash flow?
Captives can help you accomplish that.
In addition to the potential premium surplus, you can withdraw funds from the account to pay for other business expenses. The distributions will be taxed—but at a lower dividend rate.
Also, if all goes according to plan, the fund and reserves will accumulate into a large pool over time. Rather than leaving the money to just sit there losing value, a portion of the reserves could then be invested to drive even more value to the company and its members.
Clark & Lavey: Captive Insurance for Growing Businesses
For companies that have a positive claims history, bear existing coverage gaps, and want to improve cash flow, captive insurance is an innovative solution that can meet your specific business insurance needs and help you better manage your company’s risks.
At Clark & Lavey, our InCap® Solution is designed to address the issues of increasing regulatory complexity and escalating health premium costs—it’s a program made for and controlled by its owners.
If you want to see whether InCap®is the answer to the challenges your business faces, contact us today.