Group Captive Benefits
Benefits of Group Captives
A group captive lets well-run businesses insure themselves together instead of subsidizing everyone else. Members can earn back underwriting profit and investment income and get more control over their programs.
Start a conversationThe Employer Success ProgramWhat a group captive is
In simple terms, a group captive is an insurance company created and owned by several businesses to insure the risks of its members. It is set up to meet the risk management needs of its owners.
The standard insurance market runs on the law of large numbers. Better-run businesses with fewer claims subsidize the ones with more. The well-run, safety-focused businesses can qualify to leave the standard market and insure themselves in a captive, where the combined risk is much lower than in the general pool. Because they have fewer claims, their premium can come down. Over time, many members see significant premium reductions.
Your premium follows your results
An actuary sets your loss fund largely on your own claims history instead of general industry averages. Captive members usually have better claims than the industry average, so pricing built on their own history costs less. Members also tend to improve year after year, and that compounding can push their cost well below the industry average.
Where the premium goes
In many programs, roughly 40% of your premium covers the captive's expenses. That includes the fronting company fee, the captive's reinsurance, claims management, agent commission and the other operating costs.
The other 60% or so goes into your loss fund. In a group captive the loss fund is split. Your A fund pays your own claims. The B fund is a shared layer that every member pays into, and it covers the part of a large claim above the A fund's limit. Reinsurance sits above both.
If your loss fund is not used up, what is left stays in your account for later distribution and can earn investment income. Claims that do happen are not paid all at once, so the reserves set aside for them are invested too, and those earnings also go to your account. Investment income helps pay claims and can come back to you later as a dividend. Dividends come back over a number of years, as each program year's claims settle and the year is closed.
There is another side to that. Members post collateral to back their obligations, and if a year goes badly, members can be assessed. That is part of the trade for getting your underwriting profit back.
Put together, lower premium and the return of underwriting profit can mean a much lower cost to insure your business than the traditional market.
More control over your risk management
Businesses often move to a captive because of high pricing, limited capacity, coverage they cannot get in the traditional market, or a want for a more cost-efficient way to finance risk. Once in, they usually get more control over their risk management program. That control shows up in cash flow, transparency, the ability to customize coverage, better claims handling and reporting, and steadier budgets.
Turning Premiums Into Profits
David Leng's book on captive insurance is written for business owners who are tired of the same insurance cycle every year. It explains how a business paying more than $100,000 a year in premium can take on some of its own risk in exchange for the potential rewards, and why captives have become the most widely used way to do that.
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.