Maximize Your Return on Investment With a P&C Captive

September 13, 2024

By Roger Ladda

Employers today are making significant investments in their workforce and facilities through safety and loss control programs. These programs can vastly improve worker safety and lower the risk of casualty insurance claims (workers compensation, general liability and automobile liability).

Captives that provide insureds with property and casualty insurance coverage can help organizations better control their overall insurance spend and allow them to reap the benefits of their investment in safety and loss control more efficiently than a guaranteed cost insurance plan.

P&C Captives Defined

A P&C captive is an insurance company formed under a special purpose statute with the primary purpose to finance the risk of its owners, participants or members. Captives are capitalized, licensed and regulated insurance companies under specific statutes, and are domiciled both on-shore and off-shore. Captives allow an individual company, or a group of like-minded companies, to form their own insurance entity. There are several types of captive insurance companies. Among the most common are:

• Single parent captives designed for larger companies (generally with annual premiums of $2 million or greater) seeking to insure the risk of a parent company and its subsidiaries/affiliates.
• Group captives designed for a group of companies that join together to form their own insurance company. Banding together provides risk distribution, risk diversification and ample spread of risk to operate a viable insurance company. Members have the opportunity to control their “frequency” risk (and premiums) and can share severity risk with other members, thus lowering overall costs.
  Rather than transferring all insurance risk to traditional commercial carriers, the captive assumes a level of calculated risk that is priced by a third-party actuary and transfers the catastrophic risk.

Reaping the Return

By taking on this risk, employers put themselves in a position to reap the financial rewards. When claims are low, captive members, not an insurance carrier, keep the underwriting profit and investment income. These savings are compounded when companies invest heavily in safety and loss control programs that reduce workplace injuries and insurance claims and help to create a culture of workplace safety.

Safety and loss control programs require financial investment to implement and maintain. But in a traditional, guaranteed cost (first dollar) program, the premiums paid are kept by the insurance carrier and employers don’t see any financial return from lowering their claims. In essence, the good performers in the traditional market are subsidizing the companies that are experiencing adverse loss experience. With captives, employers that invest in loss control measures that translate to lower claims costs reap the financial return on their investment.

Additional Benefits: The 3 Cs

Aside from keeping the financial return on investment in worker safety, captive insurance programs offer several additional benefits to employers:

• Consistency – In today’s environment, traditional insurance premiums are growing and coverage can be difficult to secure. Captives offer more predictable and stable pricing. They also have mechanisms to control costs when claims are high.
• Control – Captives remove many market factors from pricing. Cost is not based on what insurance companies think they can charge, but rather what organizations predict their losses will be.
• Customization – Captives allow an organization to build more specific coverage for certain lines at actuarially-derived premiums using the insured’s data, rather than being forced into off-the-shelf policies from insurance companies who dictate pricing. Captives allow for a more comprehensive approach to risk and long-term strategic thinking.

What Are You Waiting For?

Does your business have a successful safety and loss control program? Are you in a high-risk industry? Do you want to stop letting the insurance carriers benefit from your smart thinking and successful safety efforts? If you answered “yes” to these questions, a P&C captive may be able to improve your company’s bottom line. Captives provide employers with more consistency, control and customization that leads to superior results.

At Conner Strong & Buckelew, our team is deeply experienced in P&C captives and can help your organization reap these benefits. We also have close connections to industry-leading safety and loss control experts that can help our clients lower claims even further.

For more information on how our team can help, please reach out to your Conner Strong & Buckelew representative, call us at 1-877-861-3220 or email [email protected].