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Last week, we defined what an insurance captive is and the 3 most common types of captives. This week, we will explore if such a performance-based insurance product is appropriate for your construction company or if your insurance needs are best-fitted for a guaranteed cost program (i.e. traditional insurance). Often, the two will work together.
Traditional insurance covers hazard risks in your construction company
When you buy traditional guaranteed cost insurance, such as workers comp, general liability, etc., it provides hazard risk coverage for your company. For the most part, the rates and the premium you pay is based on the collective experience of an insurer writing similar companies. We commonly refer to this method as “subsidy-based insurance.”
If you have a good loss history, the premium you pay actually subsidizes those other insureds whose losses are not as good. This option gives you little control. Your good loss history inures to the benefit of the insurance carrier. You are simply sending in your check to the carrier.
Captive insurance features a variety of benefits for your insurance costs
A captive can be a viable alternative for companies that desire more control, have good safety and control their claims. Some benefits of captives include:
- Your performance determines your cost – a true performance-based product
- Improved cash flow
- Improved risk coverage
- Reduce insurance costs – lower fixed costs
- Access to reinsurance markets
- Lowers your total cost of risk
- Greater flexibility in coverage terms, conditions and exclusions
If you participate in a captive, the number of insureds (i.e. shareholders) is much less than in a traditional carrier insurance pool. For example, many group captives are designed for specific industries. As such, they enable efficiencies, loss control programs and expertise not available to the larger, traditional carrier insurance pool.
Additionally, as a captive shareholder, you share in the captive investment. Under traditional insurance programs, these monies would remain with the insurance company as their profit.
Lastly, if you’re tired of the annual exercise of chasing the lowest premium in a traditional, subsidized program of insurance, you owe it to yourself to explore the option of a captive. Remember, a captive allows for you to customize your insurance coverage. It gives you flexibility, and it’s a product that is based upon your company’s performance!
Still have questions on Captives or other insurance coverages? Download our Captive Benefits Flyer below! You may also give TSIB a call today at 201-267-7500.