Captives and Self-insurance

Captives and self-insurance are two types of insurance programs that allow businesses to retain some or all of their risk management activities and costs.

Captive Insurance

Definition: A captive insurance company is a subsidiary or affiliated entity established by a business or group of businesses to provide insurance coverage exclusively for the risks of the parent company or group.


Key Features:

Ownership: The parent company or group owns the captive insurance company, giving it greater control over the insurance process and underwriting decisions.

Customization: Captives offer the flexibility to tailor insurance coverage to the specific needs and risk profile of the parent company. This includes choosing coverage limits, deductibles, and policy terms.

Cost Control: Captive insurance can potentially lead to cost savings over time by eliminating the profit margins and overhead costs associated with traditional insurance companies.

Risk Retention: Captives allow businesses to retain a portion of their own risk, which can be a strategic financial move if the business has a strong risk management program and favorable loss experience.

Considerations

Risk Assessment: Businesses considering captive insurance or self-insurance must conduct thorough risk assessments to evaluate the feasibility and appropriateness of these strategies.

Regulatory Compliance: Both captive insurance and self-insurance are subject to regulatory requirements and must comply with applicable laws and regulations.

Risk Tolerance: The decision to pursue captive insurance or self-insurance depends on the business's risk tolerance, financial stability, and long-term risk management goals.


Key Features:

Direct Risk Assumption: Self-insured businesses directly assume the financial risks associated with their operations and assets. They create a designated reserve fund to cover potential losses.

Flexibility: Self-insurance allows businesses to tailor their risk management strategies and funding mechanisms to suit their specific needs and financial capabilities.

Regulatory Requirements: Some jurisdictions require self-insured businesses to demonstrate financial responsibility and maintain sufficient reserves to cover potential liabilities.

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