CAPTIVES:  WHO SHOULD CONSIDER DEVELOPING THEM?

The use of a captive should be considered for entities that meet one or more of the following criteria related to their operations:

  • Profitable business entities (good balance sheet) with approximately $500,000 or more in sustainable operating profits.  This will ensure the organization can meet the domicile capitalization requirements for the captive, as well as any collateral requirements (if applicable)

  • Spend $500,000 or more annually on property and casualty insurance premiums

  • Cover 100 or more employees on its health insurance policy

  • Businesses with multiple entities or those that can create multiple operating subsidiaries or affiliates

  • Businesses with requisite risk currently uninsured or underinsured

  • Businesses where owner(s) are looking for asset protection

  • Risk management focused and think long-term investment

  • Entities who have the need for customize insurance policy language

 

A captive is a flexible instrument and can provide coverage to meet the changes in an organization. Coverages can include traditional types of insurance (general/professional/malpractice lability insurance) to non-traditional coverage types specific to the organization’s industry.  Businesses are already often forced to effectively self-insure risks (whether they realize it or not) because either the risk is so unusual that insurance cannot be purchased for it at any price, or because the insurance to cover the risk is cost prohibited.

 

Even where a business has insurance against certain types of risks, the business will still be exposed to deductibles and exclusions. While in the past, general liability insurance covered a very broad range of risks, typical modern exclusions which opens up an organization to various exposures. This type of policy may have exclusions for things like employment practices liability, which expose the business to claims of sexual harassment, age discrimination, wage & hourly claims, and the like. The insurance provided by captives can fill these insurance gaps.

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