Three Categories of Coverage in Your Captive
Every captive insurance program involves three categories of coverage: replacement, exclusions, and new lines. Understanding each unlocks significant economic opportunity.
A Multi-Million Dollar Profit Center
There is significant opportunity for an organization to create a new multi-million dollar profit center by owning its own insurance company. A captive insurance company is unique to your organization, insuring exposures based on a variety of factors including regulatory compliance, scale, specific or unique exposures you want to insure, and timing.
Understanding your existing risk management program completely allows ALINK to identify and ultimately provide you with the insurable options available, and the potential economic impact. As we review your existing coverages, there are three specific categories of coverage we identify for you.
1. Replacement
Consider your Directors & Officers coverage as an example. You currently pay a third-party carrier for this coverage. With your own captive insurance company, you would have the exact same coverage, yet your insurance company retains the underlying profits (minus claims).
Not all coverages are replaceable due to state insurance requirements or the underwriting scale of a particular company. Additional capitalization may also be required. But where replacement is possible, it represents immediate economic benefit.
2. Exclusions
One of the terms for this is DIC, or difference in conditions. Insurance policies are typically simple and direct, and then list 45 pages of what is not covered. For example, your property coverage items typically insure only the physical building. The exclusions may include a pandemic, bed bugs, earthquakes, and more. These exclusions are easily insured in your own captive insurance company.
Another way to be more efficient is through the limits of a deductible. Raise the specific limit on your existing policy, lower the cost of that catastrophic policy, and use those proceeds to insure that deductible in your captive. Your captive is then taking on the risk in an efficient manner.
3. New Lines
Trade credit insurance is a great example. Also called accounts receivable insurance, it protects businesses when a customer or sub-contractor fails to pay a trade debt. There are many additional exposures that are currently being informally self-insured, meaning the owner is responsible for losses from their operating account. Insuring those exposures in your captive is formal, with limits and boundaries.
These lines of coverage are often considered low in frequency yet high in severity, so business owners choose to informally self-insure. When formally insuring these exposures in your own captive insurance company, premiums now become potential profits while providing the protection desired.
Control and Flexibility
You have the flexibility to determine which lines you replace, how important it is to insure exclusions, and whether to add coverage for existing exposures not currently formally insured. The ability to choose gives you control over your risk management program and, most importantly, better control over the economics of your risk management.
Call 720-213-0583 to learn how captive coverage categories apply to your business.