Captive Insurance Strategies
A Captive Insurance Company (captive or CIC) is a property and casualty insurance company established to provide coverage primarily for a parent company. It can be a valuable risk management tool which allows businesses to more effectively manage corporate risks of all kinds. A captive insurance company may be established to provide unique coverage or coverage not available through commercial property and casualty insurance companies.
Coverage underwritten through and insured by a captive insurance company is often best utilized as a supplement to existing coverage, providing a more effective total risk management program for the business owner. The captive insurance arrangement may also be implemented in order to allow the captive owner to capture overhead, profit and other capital which would normally transfer to another insurance carrier.
The risk management consultant will review existing policies, identify gaps in coverage and recommend potential areas of exposure. Once the desired insurance risks have been identified, an actuarial company will be retained to determine an appropriate premium for the risks assumed by the captive, which will in turn provide coverage for the named risks.
Successful business owners face the pressure of multiple risks in their daily operations. Examples include: loss of a business license or professional license, adverse financial impact of regulatory or legislative changes, loss of a key vendor or major client, loss of franchise license or lease, environmental losses, regulatory inspection failure, etc. Small to mid-size privately held businesses can benefit from risk management tools that help them more effectively manage such enterprise risks and control their insurance costs. We recommend they consider establishing their own Captive Insurance Company.
Our Captive Insurance Process
During your initial consultation with Painless Tax, we will work with you and your advisors to determine if a captive insurance program makes sense for you. We’ll get to know more about you and your company to better understand the potential risks and exposures that may be appropriate for your captive insurance company.
After this initial consultation, our group will help you and your advisors determine if this makes sense for you.
We’ll then work with you to complete a feasibility questionnaire, which we’ll use to obtain the basic information necessary to pre-qualify prospective clients.
Painless Tax will oversee the coordination with the captive manager, actuarial, and risk management advisors to recommend policy features, coverage, and limits that will meet the specific exposures of your operating company. On an informal basis, our team will provide feedback regarding an approximate premium to be paid for the coverage provided. We will work with you and your financial team to identify advantages and disadvantages of a captive insurance structure, as well as the many regulatory and compliance requirements you will need to follow.
Clients are not required to pay for a feasibility study upon initiation of the feasibility analysis, which means we’ll provide these services without upfront cost during the exploratory stage of the process. If the informal feasibility analysis, along with you and your advisors, confirms a captive insurance company to be a viable solution for your business, we will enter into an engagement agreement with associated fees.