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