You are in the business of saving lives and limbs. You are among the safest construction companies around. Why should you share in the risk of companies that are not as safety conscious as you are? That was one of the key messages delivered by a consultant from Captive Resources, who spoke with 35 contractors invited by MRG to learn about captives—an alternative to traditional insurance.
MRG has many Philadelphia contracting clients in captive programs and many more who have expressed an interest in learning more.
What are captives? It’s a different risk management solution that takes you out of the group market and into an option that is controlled by the owners. Large companies are self-insured. Why can’t mid-sized companies be too?
For construction companies that are tired of premiums going up, despite their focus on safety, captives may be a good option. However you should not join just to save money. Being in a captive will keep you safe and make you safer.
There are many benefits to being in a captive, starting with control. The owners are shareholders and make the decisions. In addition, claims are resolved much faster in a captive, a welcome surprise for many companies that don’t realize how much time they are actually spending indirectly on claims. Perhaps best of all, money that isn’t needed to pay claims is reinvested, and the captive owners get those funds back.
In the traditional insurance marketplace, if you have a bad year, your premium will increase during the next time period. In a captive, the five-year loss history shields you from increases the majority of the time.
Other benefits of captives include:
- Insulating your company from adverse market conditions
- Improving your cash flow with custom tailored coverages and the cost of risk stabilized
- Containing your tax burden with profits in a tax-preferred environment
- Securing incentives to control losses
- Owning an equity stake in your insurance company
- Gaining direct access to wholesale reinsurance markets and broader coverage
There are many different types of captives including homogeneous ones that put businesses in the same industry together and heterogeneous types, that mix companies from different industries. Like-sized companies are generally placed in the same group.
The negatives to captives? There is a collateral requirement for three years so if cash flow is tight, a captive might not be the best option for you right now.
The best companies are leaving the traditional marketplace while sub-par companies will stay there. Only companies that are a good risk are accepted into captives.