Captives
Understanding Captive Insurance
Each section explores captives, from the basics through successful implementation. If you consistently pay more in premium than you get back, a captive may let you keep the difference.
Start a conversationThe Employer Success ProgramWhere does your excess premium go?
When you pay an insurance company more in premium, year after year, than it pays out on your behalf, where does that money go?
Your focus on safety is what makes you attractive to insurance companies. It is also what lets them earn an underwriting profit on your business. That profit is your excess premium. In a traditional program it helps pay the claims of businesses that are not as focused as you are, and it goes to the insurance company's shareholders.
Then a hard market comes. Rates go up across the board because businesses with poor claims were not charged enough. Better-performing companies cannot offset those losses, and everyone's rates go up, yours included.
That is why so many businesses look to alternative risk financing, and captives in particular, to lower their Total Cost of Risk and get more control. In a captive, the underwriting profit from your results, and any investment income, can come back to you.
Captives are not new
Captives have been around for more than 100 years. A captive insurance company is a separate company formed to manage the risks of its owner. Large companies have used single parent captives for decades to manage complicated risk portfolios. Like-minded business owners then joined together to form group captives so they could get the same advantages.
Alternative risk financing keeps growing
Alternative risk financing means a business does not buy a traditional guaranteed cost policy. It buys insurance where it takes on some of the risk in exchange for the potential rewards. More premium flows into this market than most owners realize, and group captives are the most widely used option. As the number of captives has grown, so has access for middle market companies.
If you pay more than $100,000 a year in workers' compensation, general liability and auto premium combined, you may be able to break the cycle and get more control over your insurance costs.
One of the biggest differences: in a captive, your premium is driven by the quality and results of your own operation instead of the average rates the industry uses.
Captives: what you need to know
A captive lets a business fund its smaller, predictable claims itself and buy reinsurance for the large, unpredictable ones. The underwriting and investment profit that would go to an insurance company can come back to the owners. Learn more
A group captive is an insurance company owned by several businesses to insure their own risks. Well-run, safety-focused companies pool their risk and can earn back the underwriting profit and investment income. Learn more
Single parent captives suit companies with large premiums. Group and association captives let smaller businesses pool resources. Captives can be single cell, multi-cell or segregated cell, each with a different level of protection between participants. Learn more
Privately held mid-market companies with predictable risks, a strong safety focus, solid finances and more than $100,000 a year in workers' compensation, general liability and auto premium are the usual candidates. Learn more
Joining a captive is a bigger decision than a renewal. The review looks at your claims, your operation and your finances, and it can take several months, so it should not be squeezed into your normal renewal. Learn more
Sometimes called micro-captives, these are used by profitable mid-size companies to finance risks the traditional market will not cover, such as regulatory, political or reputational risk. Learn more
Employers use health captives to get access to their claims data, shape their own plan and keep the underwriting profit when the year runs well. Learn more
Captive Insurance Services
Your single destination for captive solutions.
Selling you on a captive is not what we want to do. Captives are not for everyone. Only businesses that understand captives and can benefit from them should use one to finance their risks. Our focus is giving you the guidance, tools, support and education to succeed if you do.
Along with guiding you through the whole captive process, Duncan Financial Group runs workshops and webinars on the types and structures of captives, how they work, how to gauge success, benchmarks and key performance indicators, and how to read captive financials. We also keep you current on what is changing in the captive world. Knowing the success factors, and the problems you may run into, is what improves your results.
Captive discovery services
Lower cost structures make captives attractive, but you need to know whether a captive is right for you. We look at your safety and risk management practices and analyze your claims to see if the time is right. We can also tell you whether a group or association captive, or your own single parent captive, makes the most financial sense.
There is a cost to start your own captive or to enter a group captive. We review those costs and what the collateral requirement does to your financial picture, including cash flow, loans and lines of credit. Our accounting and CPA professionals can review your financials and recommend how to structure them before you submit for captive review.
Qualifying for a captive, and setting your premium and reinsurance costs, takes far more data about your operation, claims history and finances than a renewal does. We walk you through it, help gather what is needed and put it in the format captive managers want to see.
There are a lot of captives, captive managers and group programs out there. Finding the right program and the right manager matters for the protection and the financial success of your business. Along with our own captive facility and captive manager, we have access to dozens of programs and managers.
Who owns the captive affects who carries the financial responsibility and who receives the dividends, and how those dividends are taxed. Your business, personal and estate goals all come into it. Our captive people and our accounting and CPA professionals can advise you, and your own tax advisor should be part of that conversation.
Improving captive performance
Your claims decide how your captive performs. Keeping claim costs down means less paid out and more left in your program. Our team of seasoned claims professionals works to make sure every claim is managed, settled or denied in your best interest.
You already focus on safety and quality, or you probably would not be looking at captives. Finding the risks that are still there and deciding how to reduce or remove them is what drives captive success. Our Certified Safety Professionals, Certified Risk Managers and Certified WorkComp Advisors help your team build and run a risk management program that fits your operation.
Hiring, managing, training and keeping good people is where every business starts. Our human resources specialists, including a human resources attorney, support your team so they have the right information when decisions come up.
Being in a captive does not mean you stop watching how it performs, especially in a group or association captive. We help you compare your captive cost structure to the traditional market, see whether other members are dragging down your results, and decide whether the cost structure is right.
Your captive cost follows your claims, so manage to the leading indicators, not just the claims themselves. Injury frequency, near misses, rejected product counts, turnover, peer observation reports and out of service vehicles all point to problems before they become claims. We help you build that set of measures and a way to track it.
Additional captive services
Insurance program design
Even inside a captive, you buy insurance to pay for the claims you do not expect. Business owners often mix business assets, property, vehicles and investments with personal ones, and that is where oversights happen. Our Risk Assessment helps you run a safer, more productive company, and it also gives us a clear view of both your business and personal world. Through our Coverage Analysis we make sure your business and personal protection fits what you actually need.
Captive audits
If you are already in a single parent, group or association captive, we can do a deep analysis of the captive and your overall safety performance. Using benchmarks, we help you see whether the captive is really working for you and what needs attention to improve it.
Turning Premiums Into Profits
Think about the money you handed over for insurance last year and what came back. Then think about the hours spent chasing bids and quotes that never got you the result you wanted. Most businesses repeat that cycle every year and expect it to turn out differently.
In Turning Premiums Into Profits, David Leng shows how to break that cycle, take more control of your insurance program and build equity that stays with your business. It covers how businesses paying more than $100,000 a year in premium can use alternative risk financing, and why captives have become the most widely used option. David has more than 35 years in risk management and insurance helping employers lower what they pay.
Real businesses, real results
David, I just can't thank you enough for finding and returning to us the $27,438 in overcharges from our last two years of audits. I only wish we had been allowed to go back to the prior years to recover money. More importantly, you provided us with a process so that we can avoid being overcharged in the future.
Ralph Kemp, President, Elk Air Conditioning
I just cannot thank you enough for helping us to take control of our work comp. In addition to making my life easier by helping to manage our claims, your team helped us create a very strong safety culture. Our injuries are down significantly, but more importantly, you helped reduce our work comp premium by over $80,000 a year.
Lori Bodnar, HR Director, C Harper Automotive Group
Watch: why employers use captives
Where the Employer Success Program comes in
It starts with a Diagnostic and Plan. We read your loss runs, your mod worksheet and your key contracts, and we talk with the people who run the work. You get the pattern behind your claims and a short list of what's worth fixing first.
From there our claims, HR, safety and fleet people work alongside yours, and you get a Score Card at the start and every year after, measured against your own starting point.
Start with a conversation
Tell me what's going on. I read these myself and reply within two business days. If there's nothing worth fixing, I'll tell you that too.