In recent years, the health insurance market has been faced with increasing costs and regulatory requirements. As such, captive insurance has emerged as a viable alternative to traditional employee health insurance, allowing for more customization, reduced operating costs, increased coverage and capacity, and greater control over claims.
But if you’re considering embracing this new model, you should know that there are different types of captives, including single-owner captives, group captives, and rent-a-captives.
Today, let’s review the three most common captive insurance options so that you can make the best decision for your business.
What Is Captive Insurance?
Captive insurance is a group health plan wholly-owned and controlled by its self-insureds. Depending on the plan, that could be a small group of people within a single company or a large conglomeration of multiple entities who share a common interest.
Rather than paying money toward a commercial insurer’s fund, the owners of the captive invest their own resources and thus assume some of the risks. In exchange for taking on this increased risk, companies with a clean loss history and effective risk management policies can save money over time.
According to Risk Insurance Magazine, there are several benefits of owning or participating in a captive, including:
“They can enable you to secure more flexible, wider, and more affordable coverage tailored to your needs, greater control and management of claims, underwrite third party business, and add access to the reinsurance market, as well as some obvious tax advantages.”
Types of Captive Insurance
As mentioned, when forming or shopping for a captive plan, there may be several options available to you. These include:
- Pure Captive – Also known as a single-parent captive (SPC), a pure captive is set up and operated by a single owner. The plan insures its own risks as well as those of any participating subsidiaries or affiliates. In this case, the original insureds are the principal beneficiaries. As such, they have greater control and direct involvement over its operation.
- Group Captive – A group captive is formed by a pool of individuals or non-related entities that jointly set up the plan to insure the risks of the owners. Typically, said risks are similar in nature. But that needn’t always be the case. This is often an attractive option for small-to-midsize businesses that lack the requisite premium volume to justify owning a pure captive. Instead, by pooling their resources, they can better distribute risks, profits, and losses. Types of group captives include:
- Coverage availability
- Profit centers
- Cash flow
- Rent-a-Captive – Forming a captive can be a lengthy and costly process, especially for a smaller company. This type of captive plan is owned by an outside organization—broker, reinsurer, fronting insurance company—that isn’t a policyholder. It allows the business to join a captive plan without the financial commitments and risks inherent to captive ownership. Per IRMI:[1]
“In return for a fee (usually a percentage of the premium paid by the renter), certain captives agree to provide underwriting, rating, claims management, accounting, reinsurance, and financial expertise to unrelated organizations.”
The Clark & Lavey InCap® Solution
Captive is still an emerging market—a novel form of insurance that can help your company reduce costs, assume greater control over claims, and tailor coverage to meet your specific needs. And, the fact that there are different types of captives—namely, pure captives, group captives, and rent-a-captives—ensures that you have even more flexibility when selecting the optimal coverage structure.
At Clark & Lavey, our InCap® Solution is a group captive plan that gives you increased control of the plan’s benefits design, cost transparency, claims pooling, and profit underwriting—all without the burdensome plan negotiation.
To learn more about how our group health captive insurance program operates, contact us today!