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Captive insurance is a form of alternative risk transfer used by major corporations, nonprofit organizations, and medium-sized businesses who want to retain some of their own risk (instead of purchasing insurance from a standard market insurer). Captives can be an attractive option for companies who find a limited availability of certain types of insurance coverage in the commercial market or find that those coverages will be a significant expense.
When a company is challenged with securing coverage for a particular risk or finds the cost of coverage to be prohibitive, captives may be an effective solution. Captives are complex – and aren’t appropriate for every organization – but when structured properly they provide a variety of benefits, including opportunities to:
Captives can be valuable strategic risk management tools, but they are not the best approach for every organization. For some risk profiles, they are not feasible, and could ultimately cost more than traditional insurance.
First, you will need to complete a comprehensive feasibility study, using external counsel to help you assess whether a captive is an appropriate solution for your organization. If you determine captives are right for your organization, it’s critical to engage professionals experienced in actuarial, accounting, tax, and legal issues to help you set it up.