Evaluating A Captive Program
A properly structured captive insurance program offers an elegant and strategic solution. As an alternative risk management model, captive insurance provides customized policies tailored to your unique risks. This translates into substantial cost savings compared to broad commercial coverage. With a captive insurer, you gain greater control over policy design, claim payments, and your entire risk financing strategy. Leading experts recognize captive insurance as a game-changing innovation for ambitious business owners.
By forming a captive insurance company, you can craft policies that provide precise protection for your company's specific vulnerabilities. This surgical approach reduces waste and lowers your total insurance expenditure. Captive insurance also empowers you to manage claims handling, set optimal coverage limits, and maximize your risk control - capabilities lacking with commercial carriers. Ultimately, a properly structured captive insurance program boosts your bottom line by curbing premium outlays while tackling your uninsured risks.
The starting point in your captive insurance evaluation is a feasibility study. This in-depth analysis examines your company's risks, loss history, and specific protection gaps. Your risk management advisor will quantify possible claims scenarios and required capital reserves. Detailed financial models reveal your potential cost savings from self-insuring certain risks through a captive insurance company versus commercial policies. In essence, the feasibility study determines if a captive insurance company aligns with your risk profile and objectives.
You'll need specialized experts like attorneys, actuaries, and domicile-approved captive insurance managers to properly structure and operate your program. Your advisors will navigate compliance and help optimize your captive insurance company's structure to maximize benefits. They'll also secure necessary regulatory approvals and conduct ongoing filings and audits to keep your captive insurance company in good standing.
Selecting the optimal domicile is critical when establishing your captive insurance company. Onshore jurisdictions like Vermont, Utah, and South Carolina offer captive insurance-friendly regulations, while offshore locales boast advantages like administrative flexibility. As fiduciaries, your advisors should objectively evaluate legislative, tax, infrastructure, and other factors to recommend the ideal domicile for your program. The right domicile provides a compliant foundation for your program's success.
Performing a quality feasibility study is the critical first move when evaluating a captive insurance program. Your risk management advisor will undertake this 6-8-week process to analyze your risks, finances, goals, and more. Here's an overview of key feasibility study components:
- Clarifying objectives - sets the focus for analysis
- Defining your risks - identifies coverages to evaluate
- Measuring your risks - examines loss history and required capital
- Tax impact analysis - evaluates deductions and consequences
- Structuring strategy - weighs captive insurance models like single parent vs group
- Domicile recommendations - compares legislative and tax factors
FAQs
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Between risk advisor fees, legal, tax and actuarial analysis, plan on an investment of $15,000-$50,000. The expense is well justified by the value of its strategic insights.
Once you decide to move forward, it takes 1-3 months to set up your licensed captive insurer. Your advisors will incorporate the optimal structure and domicile from the feasibility study into your captive insurance company's business plan. Here are the key steps in the formation process:
- Submit application to the domicile insurance regulator
- Establish the captive insurance company's legal entity in the domicile
- Develop policies, capital models, and financial projections
- Secure regulatory approval and obtain the captive insurance license
- Transfer necessary capital reserves into the captive insurance company
- Contract service providers for underwriting, claims, compliance
With the right team, your program will meet important milestones leading to approval.
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While brokers have general insurance expertise, captive insurance formation requires specialized skills and domicile experience. Captive insurance-focused advisors and local service providers are best equipped to navigate the nuances.
Once up and running, your onshore captive insurance company must adhere to rigorous filing and compliance standards. Your domicile advisor will ensure adherence by managing key functions:
- Underwriting policies tailored to your risks
- Administering and adjusting claims
- Supporting audits and actuarial opinions
- Filing quarterly and annual financial statements
- Paying premium taxes and regulatory assessments
- Maintaining sufficient capital reserves
With oversight from your captive insurance manager, program milestones will be met to fulfill regulations.
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You can administer claims in-house or via a contracted third party. The captive insurance board retains authority over large claim settlement decisions. Adhering to detailed claims handling policies is crucial.
Failing to conduct proper due diligence with a feasibility study leaves you vulnerable to a costly covert program. Similarly, working with inexperienced advisors exposes you to compliance pitfalls or suboptimal structures that reduce benefits. But with an expert team guiding your regulated onshore captive insurance, you gain a tailored risk management solution that provides savings and control for years to come.
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