Captive insurance offers private insurance options for companies unable to obtain coverage on the public market. Types include single parent, group, agency, and risk retention, with rent-a-captive available for smaller businesses. Captive insurance is useful for high-risk industries and can be recommended by insurance specialists.
There are many different types of captive insurance, a private type of insurance that a company can use to cover its liabilities if it has difficulty obtaining insurance on the public market. These include segregated portfolio companies (SPCs), risk maintenance groups, and special purpose vehicles (SPVs), along with agency, group, single parent, and partnership captive insurance. For businesses unable to afford their own captive insurance, rent-a-captive is available, offering similar services for a fee to smaller businesses and organisations.
One of the most common types of captive insurance is a single parent setup, in which a company establishes insurance for itself and any affiliates and subsidiaries. This may be an option for very large companies that want to meet their insurance needs effectively and at a reasonable cost, particularly if they operate in dangerous industries such as mining. Purchasing insurance on the open market could be extremely expensive or impossible for such companies, necessitating the formation of a captive.
Captive group and association products serve both groups of companies. In a captive grouping, all companies within a particular industry or sector can access coverage through the insurance company, while a captive group is an insurance business owned by a group of companies with common interests. For smaller businesses that are having trouble finding coverage but can’t access insurance through these categories, captive rent insurance is an option.
In captive agency plans, an insurance broker establishes a reinsurance plan to cover specific clients. At times, these customers may not be able to receive regular coverage. In other cases, providing self-service coverage through the agency could expose the broker to unreasonable risk. Then, the broker has to create an insurance policy for his insurance, sharing the risk with another company. Captive SPV and SPC insurance can offer similar services, as well as insulate risk, so if the insurer has to pay, it can’t drag the whole company along with it.
In a risk retention group, people can purchase liability protection for matters such as malpractice. Both doctors and lawyers may find malpractice insurance costs very high and this can be an option to keep them manageable. Companies can form groups together or independently, becoming shareholders of the insurance company, as well as owning policies. Coverage for first party liability, such as workers compensation, is not available through this type of bonded insurance.
Captive insurance is usually a good option for individuals or businesses that are involved in industries with a high degree of risk and have trouble obtaining insurance through other means. If insurance is too expensive or unavailable, turning to a captive product can provide people with more options. Insurance specialists can provide people with advice about their options and recommendations on how to proceed if they are unsure of how to get the best coverage for their needs.
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