Risk & Business Magazine JGS Insurance Magazine Fall 2019 | Page 8

CAPTIVE INSURANCE
THE
ABCs OF
CAPTIVE
INSURANCE
W
hat is captive insurance and
is it a good idea for your
workers’ compensation
coverage? Captives are
formed by companies as
subsidiaries whose sole purpose is to insure
the risks of their corporate parents. They
are especially useful in situations where
BY: CONOR MORAN, CLCS
ASSISTANT VICE PRESIDENT
JGS INSURANCE
Conor Moran is a lifelong resident of
Monmouth County and graduate of
Christian Brothers Academy. Conor is
a graduate of the College of Charleston
with a degree in Business. Conor
prides himself on providing excellent
customer service ensuring his clients
receive the best insurance products
to suit their ever-changing needs.
Conor loves to travel and experience
new and different cultures. Closer
to home, Conor enjoys spending his
free time with his family and friends
at the beautiful Jersey Shore.
8
conventional insurance that meets your
unique needs is unavailable or the price is
exorbitant due to the degree of risk involved.
A captive allows you to essentially pay
insurance premiums to your own corporate
structure rather than an outside carrier,
garnering the opportunity to profit from your
captive’s investments. By managing larger retentions backed by your
captive, you can achieve potential premium
savings of 20 percent or more, along with a
potential return on your investment from
funds otherwise paid to an insurance carrier.
In a down year, you can minimize losses
with protection through prefunding and
reinsurance.
Although captive insurance companies have
been around since the 1980s, they have
mostly been used by large companies that
could afford to take on the risk. More recently,
however, the structure has been implemented
by small- to mid-sized companies too.
Good candidates for establishing a captive
insurance company include businesses that: The key to success in the captive market
is to only assume reasonable risk, with
premiums calculated by an independent
actuary. You should implement a proper
governance structure, directed by the captive
owner, and maintain a conservative and
reasonably prudent investment portfolio. Be
sure to maintain consistency in your claims
guidelines and don’t try to adopt a “we cover
everything” approach. Finally, locating your
captive in a highly receptive captive domicile
can be helpful as individual states can vary on
this issue.
• Want to have better control over their
workers’ comp programs, with more
streamlined administration and faster
turnaround times;
• Have sufficient business risk to support
the premiums;
• Have consistent, free cash flow of at least
$500,000 per year; and
• Are willing to commit to a long-term
strategy to control their risk.
While captive insurance premiums are tax
deductible, the IRS has cracked down sharply
on businesses using their captive insurance
companies as tax shelters, and they have
fallen out of favor with some business owners.
Yet when established and reported properly,
they can be a great idea for workers’ comp
insurance plans.
With a captive insurance company, businesses
no longer need to rely on the whims of the
commercial market with its accompanying
volatility and threat of policy cancellations.
ONE OF THE BEST
FEATURES OF CAPTIVE
INSURANCE IS THE
FACT THAT YOU HAVE
CONTROL.
If a valued worker is awaiting compensation
following an injury, you can ensure that
he or she is kept on track toward recovery
with timely reimbursements, rehabilitation
program approvals, and other medical
allowances. If a “worst case” catastrophe
hits, you can be sure you’re ready and staffed
appropriately to handle your needs.