Manage commercial insurance costs with a safe, traditional group captive
Group captives have gotten a bad rap, as the IRS Has Cracked Down on the dishonest use of the 831(b) captive structure for abusive micro-captive tax shelters. But don’t let that turn you off of trustworthy, traditional captive for commercial insurance altogether. A traditional group captive structure is still a great – and safe – way to control costs for your auto, general liability and workers’ compensation coverage and reap the benefits of your successful safety record.
A group captive brings businesses together to basically self-insure their claims – with an additional layer of reinsurance for protection. It leverages the financial stability and low-claims records of group members and sets them up to learn and benefit from one another’s success.
To consider a captive for commercial insurance, you generally need:
- Premiums of $250,000 or greater for worker’s comp, auto and general liability
- A loss ratio of 50% or lower
- A solid balance sheet and consistent financial performance
One of the most attractive benefits of the group captive is lower premiums and the return of unused premiums. Premiums are based on your own experience rather than general market rates. And when your claims are low, part of your premium is available for distribution, so the benefit returns to you – not the insurance company.
Captives also come with an opportunity for investment income from an equity fund established as part of the arrangement.
Finally, you are paired with other successful companies with whom you can learn, share best practices and benefit from mutual success. Some captives are composed of companies in similar industries, while others are more diverse.
This structure does not carry any of the stigma regarding improper tax sheltering, as the errant 831(b) practices have done.
Company Saves 25%, Builds Equity Fund Through Captive
The Miller Group helped Geeding Construction, a $49 million oil and pipeline maintenance company, join a group captive several ago. They were a perfect candidate because their commitment to safety was deeply ingrained in their culture, and their safety record was better than that of their industry peers. Their financial success was consistent, and they had a history of looking at non-traditional business strategies.
After almost six years of captive participation, Geeding has continually saved on the cost of insurance. In addition, its equity fund and cash reserves are now approaching a million dollars.
Is a Group Captive Right for You?
If you meet the basic criteria shown here, consider calling us for a consultation. Acceptance into a captive is a selective process, and due diligence on the part of the captive and the captive candidate can take months. But given current P&C cost trends, now is the time to look at your potential for making money off your insurance rather than enriching your carrier.