09 Mar 2021

Why Joining a Captive Could Save You Money

Many people are surprised to hear that there is an option in the insurance world where you can get up to 60% of your premium dollars back. We are going to explain why joining a captive could save you money. It may sound too good to be true, but is in fact a real, viable option for certain types of companies.

why joining a captive could save you money

What is a Group Captive?

A captive is a popular strategy for business owners who are looking to take more control over some of their more controllable lines of insurance – Workers’ Compensation, General Liability, and Auto. Companies that qualify for and then benefit from captives are those who are able to control their losses – those who are are considered safe companies. The fewer claim dollars spent on your behalf, the more money that can go back into your pockets.

It’s important to also point out that size does matter with a captive. Companies need to generally spend at least $150,000 in annual premium on the three lines of coverage above in order to qualify. The International Risk Management Institute says, “A ‘captive insurer’ is generally defined as an insurance company that is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer’s underwriting profits.”

Benefits of Joining a Captive

Members who join captives seem to do so because they enjoy the following: they receive the same guaranteed cost plan – so what you’re typically used to going through a standard insurance carrier. On top of that, they get the opportunity of getting up to 60% of their premium dollars back. How do they do that? It’s based on their losses. That’s the beauty of a captive. You’re not being pooled in with everyone else like you are with a standard insurance market, instead, it’s based on your last five years of loss runs. If you’re able to keep up that level of safety and keep your claims down, you’re able to get up to 60% of your premium dollars back.

What is Required to Join a Group Captive?

To join the captive, you will usually be required to buy a one-time, refundable piece of stock as well as provide a Letter of Credit or Collateral each year.

What Money do You Get Back?

Depending on what captive you join, equity/dividend checks can start coming back in 1-4 years. Over time, your bucket of money in your account sits in an interest-bearing account that’s making money like any other type of financial account that you would earn interest on.

How Are Premiums Calculated?

Every year your premiums are based on your last five years of losses. So there is no artificial rate being used like there is in a standard market or a market you’re currently with. You have a guaranteed cost plan. There are no loopholes or unknowns costs.

How do you limit exposure?

Captives can be an inviting option for companies that have been able to control their losses. These companies put policies and procedures in place to limit their exposure and have become what we would call a “safe” company.

If you’re one of these companies that’s tired of seeing your premiums essentially walk out the door each year and would like to potentially see some of those dollars come back in your pocket, we would love to help. You can reach out to Diversified Insurance Group for more information here.