Captive insurance offers private insurance options for companies that have difficulty obtaining insurance on the public market. Types include single parent, group, and association captives, as well as risk retention pools and captive rental insurance. It is a good option for high-risk industries.
There are many different types of captive insurance, a type of private insurance that a company can use to cover liabilities if it has difficulty obtaining insurance on the public market. These include segregated portfolio companies (SPCs), risk retention groups and special purpose vehicles (SPVs), along with agency, group, single parent and partnership captive insurance. For companies unable to maintain their own captive insurance, the captive rental service is available and offers similar services for a fee to smaller companies and organizations.
One of the most common types of captive insurance is a single parent setup, in which a company establishes insurance for itself and its subsidiaries and affiliates. 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 hazardous industries such as mining. Purchasing open market insurance could be extremely expensive or impossible for such companies, necessitating the formation of a captive.
Group and association captive products serve groups of companies. In a captive association, all companies within a given industry or sector can access coverage through the insurance company, while a captive group is an insurance company owned by a group of companies with common interests. For smaller companies that have trouble finding coverage but can’t access insurance through these categories, captive rental insurance is an option.
In agency captive 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 independent coverage through the agency could expose the broker to unreasonable risk. Therefore, the broker needs to establish an insurance policy for your insurance, sharing the risk with another company. SPV and SPC captive insurance can offer similar services, as well as isolate risk, so if the insurance has to pay out, it can’t drag the entire company down with it.
In a risk retention pool, people can buy liability protection for issues like professional negligence. Both doctors and lawyers may find malpractice insurance fees too high, and this may be one option to keep them manageable. Companies can establish groups together or independently, becoming shareholders of the insurance company, as well as holding policies. Liability coverage, such as workers’ compensation, is not available through this type of captive insurance.
Captive insurance is often a good option for individuals or businesses that are involved in high-risk industries 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 on their options and recommendations on how to proceed if they are unsure how to obtain the best coverage for their needs.
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