Broker Check
  
Captives - Is Your Business Missing Out on a Profit Center?

Captives - Is Your Business Missing Out on a Profit Center?

| January 18, 2023
Share |

What is a Captive Insurance Company (CIC)?

A Captive (CIC) is a regulated insurance business that insures risk of a parent company. This legal and sanctioned insurance company gives the parent company greater control and flexibility over its own risks and the insurance claims process. A Captive (CIC) is similar to a traditional insurance company, much like Travelers or Liberty Mutual, however you now share in the underwriting profits. This creates a profit center for the parent company as well as a risk management tool. A business owner can customize coverage to suit their needs without having to pay excessive premiums to outside businesses and can recapture much of those premiums. A Captive (CIC) can fill possible gaps in insurance coverage that may not be available to the business. Because of the flexible nature of a Captive (CIC) it could fill gaps in insurance coverage not available on the open market. By deploying a Captive (CIC), the parent company may diversify their risk and increase profits.

Optimal conditions for a potential Captive (CIC)

Today, over 95% of fortune 500 companies own and operate some form of a Captive (CIC). However, in today’s competitive environment, opening up a Captive (CIC) allows a small business to take advantage of the same benefits as the larger companies. A Captive (CIC) is available to any company with an excess of 10m dollars in gross revenue. The parent company must have a need for either property, casualty or medical insurance coverage. A company paying high premiums with low claim payments may also consider opening a Captive (CIC). The goal of owning a Captive (CIC) is to create a potential profit center, mitigate risk and to insure unique liabilities that a traditional insurance company may not.

Types of insurance risks that can be covered by a Captive (CIC)

Almost any type of insurance risk can be covered by a Captive (CIC) but it is wise to consult with our professionals first to see what sort of compliance issues may be of concern. Below I have attached some examples of liabilities that a company can cover. This list includes some risks that traditional insurance companies may not cover.

General liability

Property

Workers compensation

Auto

Ocean marine

Aviation

Crime/Theft

Cyber

Mold

Malpractice

Business interruption

Loss of key customer

Loss of key supplier

Intellectual property

Accounts receivable

Geopolitical

Pandemic

And more!


If you're interested in obtaining more information you can schedule a quick introductory Zoom meeting with one of our partners using the button below or contact our office.

Jesse Somdahl is the Director of Operations at Finance For Thought and can be reached through our office on our website.

Sources:

https://captivereview.com/news/coronavirus-shows-irs-was-wrong-microcaptives/

https://www.nytimes.com/2020/03/20/your-money/coronavirus-insurance-small-business.html

https://www.nytimes.com/2016/01/16/your-money/small-private-insurers-face-increasing-scrutiny-on-avoided-taxes.html

https://www.nytimes.com/2012/07/14/your-money/a-captive-insurance-company-offers-financial-benefits-if-not-abused-wealth-matters.html

https://www.nytimes.com/2015/04/11/your-money/irs-is-looking-into-captive-insurance-shelters.html

https://en.wikipedia.org/wiki/Coronavirus_disease_2019

https://www.captive.com/news/2018/11/19/what-is-a-micro-captive

https://www.financeforthought.com/blog/use-captive-insurance-to-keep-your-insurance-premiums-in-your-pocket

https://www.financeforthought.com/blog/four-commonly-overlooked-ways-to-reduce-business-taxes-and-expenses

https://investinganswers.com/dictionary/t/tax-arbitrage

Share |

Check the background of your financial professional on FINRA's BrokerCheck.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named representative, broker - dealer, state - or SEC - registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Securities offered through American Portfolios Financial Services, Inc., Member: FINRA/SIPC

Investment advisory services offered through American Portfolios Advisors, Inc., an SEC Registered Investment Advisor

Finance For Thought is independent of American Portfolios