Captive Insurance’s Important Evolution

Anyone who has founded a business appreciates how much time, effort and expertise is required to make it successful. Establishing a captive insurance company is no different; you might be tempted to throw up your hands and forgo it. After all, insurance is not your core competency. That could be a mistake. The captive insurance industry has matured sufficiently to the point that there are now many capable service providers that can help you analyze your insurance needs, launch and license your captive insurance company, arrange for reinsurance and manage the captive. When implementing a captive insurance plan, it is critical to focus on both its appropriate establishment and its continuing operation; these are two distinct areas of expertise. I generally recommend that businesses engage the services of an adviser to help launch the captive insurance company and another to manage its operations. See also: The Ten Questions of Captive Insurance, Part 3  I recommend retaining a lawyer who is well-versed in captive insurance to engage the services of an independent, fully credentialed underwriter and an independent, fully credentialed, third-party actuary. The underwriter will evaluate the risk inherent in your business and identify areas that should be insured. The actuary will price the risk that will be considered for your captive insurance company to provide coverage for your underlying business. Together, they will identify the coverage that can be underwritten by your own captive insurance company and how much in premiums you can pay for such coverage. Armed with that information, your attorney, accountant or advisers should be able to determine whether it makes sense to proceed with a captive insurance company. Once that determination is made, your adviser will likely work with a captive insurance service provider or insurance actuary to design insurance policies that cover key risks in your business. An important decision to make is the jurisdiction in which your captive insurance company will be licensed. Jurisdictions vary in their costs, the time it takes to form your captive and regulatory requirements. The jurisdiction that will ultimately be chosen should be the result of a detailed discussion with your attorney and captive manager. Once the captive is established, you would typically sign a long-term contract with a captive manager to handle its day-to-day operations. As a business owner, you’re aware of the risk involved in any long-term contract and the amount of due diligence necessary before entering into any such arrangement. This is where the services of an experienced professional advisor can be invaluable.