Every business must carry insurance coverage to protect it against risk. For example, businesses purchase workers’ compensation, commercial property and income loss insurance. However, some risks, such as product or pollution liability, may be expensive or difficult to insure. The company can either pay exorbitant insurance premiums, forgo coverage or start its own captive insurance company.
Captives give companies greater control over their risk. For example, they control the insurance underwriting and claims management processes. The captive’s investments can also be influenced by its parent company. These companies can fully customize their policies so they avoid paying for coverage they do not need while gaining coverage in key areas. They also control their deductibles.
Captives provide companies with access to the reinsurance markets. These markets may offer coverage at lower costs. Government programs, such as terrorism insurance, may also be open to those with captives.
In addition, … Read more