How Does Captive Insurance Work

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How Does Captive Insurance Work
By - https//larsco.com/
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• A captive is an insurance company that is
  licensed and fully owned by its insureds. This
  type of "self-insurance" allows the owner to
  invest their capital and resources and assume a
  portion of the risk. A "reinsurance" company
  assumes the balance. Although this can increase
  the risk of large claims, it can also help to
  save premiums on small claims, as the company
  keeps the money that would have been paid to
  traditional insurance companies. Captives and
  Reinsurance Companies often have a smaller range
  of coverages and less binding regulations than
  traditional insurance companies. This makes them
  appealing to companies with unique
  vulnerabilities that traditional insurers don't
  cover.

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Why Its Beneficial

• Captives are often formed to manage risk.
  Captives can help businesses save substantially
  on insurance premiums compared to commercial
  insurers. They can also provide coverage that is
  not available or unobtainable in the private
  sector. The parent company has greater control
  over the claims process and can obtain more
  tailored coverage for company risks. Additional
  benefits include

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• Capital A company that has a clean loss history
  may still face increased premiums from a
  commercial insurance company due to a poor
  investment market, or because of the volume of
  claims the insurer is processing. A captive that
  is well managed can be profitable and protect
  against risk.

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• Control Captive insurance gives companies more
  control over safety, loss, and claims
  administration. Because the capital is owned by
  the company, the captive model encourages safer
  workplaces.

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• Coverage Companies with a poor loss history or
  who operate in high-risk industries may not be
  able to obtain coverage on the open market.
  Captive insurance is a type of insurance that can
  be tailored to meet the company's specific risk
  exposures.

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So Who Uses it?

• A company with high insurance premiums, steady
  cash flow and low claims frequency is the best
  candidate for a captive plan. Captive insurance
  is also suitable for companies that want to
  consolidate their enterprise risks such as worker
  benefits, healthcare, and workers' compensation.

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Companies with

• Leaders who need or want asset protection.
• Profits from sustainable operations of at least
  500,000.
• They want to lessen their dependence on
  commercial insurance.
• A diverse workforce with different medical
  preferences and needs.

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• If your company is looking to protect itself
  against risks that the commercial insurance
  market cannot cover, IRS captive insurance might
  be a good option. Properly designed policies can
  offer many benefits and reduce your company's
  risk exposure.