Risk & Business Magazine JGS Insurance Spring 2017 | Page 30

CAPTIVE INSURANCE

Captive Insurance:

An Alternative To Traditional Workers’ Compensation

What is captive insurance and why might you need it? Captive insurance is insurance that is provided by a captive insurance company( captive, for short). Captives are wholly owned and controlled by their own insured members rather than by outside carriers. They choose to put their own capital at risk, believing that they can generate profits by instituting measures to help better control expenses. Unlike traditional insurance policies, where policyholders are beholden to an insurance company’ s rates, captives’ insurance policies allow policyholders to manage their premiums— and ideally lower them— by proactively managing their losses.

Say you are insured for workers’ compensation through a traditional policy and worked extra hard to keep your losses low last year by enhancing workplace safety and instituting more rigorous employee training programs. Not only will the benefit of those losses be unrealized by your company in the form of reduced premiums, but you could actually face a premium increase if others in your risk pool have had increased losses or if overall administrative costs have risen. Why should all that hard work in controlling your losses not be rewarded?
Through captive policies, you can benefit from your hard-earned loss reduction by sharing in the profits that your efforts have generated. Captives offer a number of monetary benefits, including the potential for lower up-front costs, increased investment income and additional tax breaks. They can also allow you to provide coverage under policies that are not widely available in the commercial market.
Here’ s another positive: captives are administered by third parties who are appointed by the captive’ s own members. These arrangements generally translate into first-class customer service due to the strict quality controls and high efficiency standards of the third-party administrators. Captive members also have access to professional risk management consultants who are tasked with working with you on proactive strategies to reduce risks and claims moving forward. In addition to reducing costs and optimizing cash flow, captives provide stable coverage from year to year, minimizing your need to constantly research new options.
SOME CAVEATS Of course, captive policies are not for everyone. Take your time in figuring out the right direction for your company and be sure to ask a lot of questions. Without careful due diligence, you could end up involved in captives with unsafe risk pools, outstanding tax liabilities, undercapitalized reserves or ambiguously drafted policies that may leave you in the lurch. Not all agencies are experienced in selling or administering captive-based alternatives, which means you may be limiting your options without even realizing it.
JGS Insurance can work with you to determine whether captive-based alternatives are right for you and help you avoid common pitfalls should you decide to move forward. We know the market well and will help you steer clear of risky options that could potentially bring down your business. If you end up deciding to stay with a traditional insurer, know that we will always be working“ behind the scenes” to help you find the best coverage available for the coming year!+
Ryan Hager is the third generation to enter into the family owned and operated JGS Insurance. At JGS Ryan has worked with both family owned businesses and large corporations to provide them with Captive Based Solutions. Ryan specializes in providing proactive services to his clients to reduce their losses and premiums in order to gain control of their insurance destiny.
BY: RYAN HAGER, JGS INSURANCE
30 | SPRING 2017