| FROM THE COMMISSIONER |
‘Captive’ vs. ‘Captive’
The difference between a captive company and captive agent.
KEN SELZER
Kansas Insurance Commissioner
T
he insurance world is full of acronyms,
abbreviations and specialized vocabulary.
Most of us use the terms (once we have
been exposed to them) in a seamless way.
However, some insurance language gets confusing.
Such is the case with the timely word “captive.” The goal of the Kansas legislation is to keep the captive
assets and related services in our state. The fact that
Kansas has not updated its captive laws does not prevent
or discourage corporations from forming a captive.
They simply go to a state or offshore jurisdiction that has
updated laws in order to form their captive.
If you have been following the potential
insurance legislation in the Kansas Legislature
this session, you know that Senate Bill 410 is
concerned with updating the laws regarding
captive insurance companies. The other use of “captive” is one that you are more
familiar with. A captive agent only works for one
company, and he/she receives compensation from that
company. Captive agents may have in-depth knowledge
of their particular company’s insurance products,
but their helpfulness with potential clients is limited
if those persons do not qualify for that company’s
products. This isn’t true for you as KAIA independent
agents; you can identify possible options.
A captive insurance company is a wholly-owned
subsidiary created to provide insurance to its parent
company and others in its group. The captive is
used to manage risk for that parent and group.
Once established, the captive then operates like any
commercial insurer by issuing policies, collecting
premium, and paying claims.
A captive company generally does not offer insurance
to the public. Accordingly, it is regulated somewhat
differently than an insurer selling policies to the
public. Importantly, the policyholders (i.e., the
parent company and others in the group) do not have
access to guarantee funds should the captive become
insolvent. Also, capital requirements are a bit less.
Our department has heard from agents and
the public regarding SB 410, and some of that
commentary has bubbled up because of the
confusion regarding the captive company concept
and the captive agent. We certainly hope that KAIA
agents, when presented an opportunity to distinguish
the concepts in a general setting, feel comfortable in
passing on the useful information.
We will most likely have an update on the legislation
in an upcoming issue of this magazine.
| May - June 2018 | KANSAS INSURANCE AGENT & BROKER
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