26 MiMfg Magazine July 2020
Premium
Associate
Member
The Best Time to Look into
Captive Insurance is Now
By Eric I. Lark • Kerr Russell
Every small and middle-market manufacturer
fights an unending battle to control expenses.
Manufacturers buying insurance in the traditional
marketplace are often frustrated as insurance premiums,
over which they have little or no control, fluctuate
(mostly upward), sometimes wildly. For manufacturers
that prioritize safety and risk control, a captive
insurance solution could help stabilize and reduce
their insurance costs, create a culture of safety and
ultimately provide a competitive advantage.
What is a Captive and How
Can it Help Manufacturers?
A “captive” is defined simply as an insurance
company that is owned and controlled by its insureds.
To the extent the insurance is profitable the benefit
inures to such owner-insureds. Captives come in
many forms and the best structure depends upon
many factors. Generally, for larger manufacturers
with significant premiums and many affiliated
entities, a “pure” or “single-parent” captive might be
most beneficial. For many small and middle-market
manufacturers, a “group captive” will be most
feasible. Now is a great time to explore this solution
as group captives are flourishing.
Group captives generally allow companies that
may not individually be large enough (from an
insurance dollar standpoint) to form a single-parent
captive, to come together and participate in a group
captive program. If these companies have positive
losses, they should be able to lower and stabilize
their overall insurance costs.
Another benefit for companies participating in
group captives is that such companies typically
become much better from a safety, risk control, and
claims handling standpoint. Group captive members
are working with their own dollars rather than insurance
company dollars and are accountable to the other
group captive members, with whom they are sharing
risk. Group captive participants are also able to share
risk-control and operational best practices.
Who are Group Captives
Best Suited For?
Group captives are ideally suited for companies
that operate in industries (like manufacturing) with
inherently difficult risk profiles, leading to volatile,
high pricing in the traditional insurance market.
The best candidates are companies that are best-inclass
from a safety standpoint but are nevertheless
still priced with the industry.
Why is Now a Good Time to
Look at a Group Captive?
The Great Recession helped fuel the current
popularity of group captives as surviving businesses
started to scrutinize their expenses, including insurance
expenses. The strengthened economy over the past
five to seven years also contributed greatly to the
current success of group captives. As companies
thrived the demand for traditional business lines of
insurance went up, as did the demand for newer
insurance lines such as cyber liability. Medical
expenses and health care costs remain high, and the
reinsurance markets have been volatile and impacted
by natural disasters (fire, hurricanes) and other
global events, most recently the COVID-19 pandemic.
Over-regulation in certain jurisdictions and industries
has caused rates to increase or insurers to exit the
market altogether. General liability rates are increasing
while auto liability rates are substantially increasing.
What are the Next Steps?
If you think a group captive or other captive structure
might benefit your manufacturing company, you should
contact a knowledgeable attorney and insurance
professional to address feasibility and implementation. 6
Eric I. Lark is a Partner at Kerr Russell. He may be
reached at [email protected] or 313-961-0200.
Kerr Russell is an MMA Premium Associate Member
and has been an MMA member company since April
2017. Visit online: www.kerr-russell.com