Property and casualty insurance premiums keep climbing, but your options aren’t limited to traditional carriers. Forward-thinking businesses are joining group captives to take control of insurance costs, improve risk management, and gain financial rewards. This alternative risk financing model is gaining serious traction and could be a smart move for your business.
Discover how group captives work, the benefits they offer, and what to consider before joining one.
Understanding Group Captive Insurance
A group captive is an insurance company owned and operated by its members, typically businesses with similar risk profiles. Rather than paying premiums to a traditional insurer, members pool their resources to insure each other’s risks. This self-insurance model offers a level of control and transparency that traditional insurance often lacks. Group captives are designed to benefit their members, not external shareholders.
Benefits of Group Captive Insurance
Cost Savings
By sharing risk among like-minded businesses, group captives can significantly reduce insurance premiums. Members retain underwriting profits and investment income rather than paying them to a carrier.
Enhanced Risk Management
Captive members often see improved safety outcomes. Because all participants have a stake in minimizing claims, there’s a built-in incentive to implement stronger safety protocols and risk controls.
Customization
Group captives allow for tailored coverage options that reflect members’ unique exposures and needs. This flexibility can be especially beneficial in specialized or high-risk industries.
Profit Sharing
Group captive members don’t just save on premiums, they also share in the program’s financial success. Because members collectively own the captive, each member benefits directly from their own underwriting profits and investment returns. These funds are distributed back to the owners, adding real value to their bottom line and making insurance spend a potential profit center.
Increasing Popularity of Group Captives
Several trends are fueling the growth of group captives:
- Rising premiums in the traditional insurance market are driving businesses to seek cost-effective alternatives.
- Greater control over claims handling, coverage design, and loss prevention appeals to businesses with strong internal risk management.
- Industries such as construction, manufacturing and distribution, energy, transportation, healthcare, and hospitality are seeing strong results from captive participation.
Challenges and Considerations in Group Captive Insurance
Group captives are not one-size-fits-all. Before joining, businesses should assess:
- Eligibility: Most group captives require participants to have strong loss histories and sound risk management practices.
- Capital Requirements: Initial investments and ongoing financial contributions are typically required.
- Long-Term Commitment: Captives are designed for businesses in it for the long haul, often with multi-year participation requirements.
- Planning and Risk Assessment: Captives require a solid risk profile and proactive loss control, so it’s important to evaluate your business’s readiness before joining.
- Regulatory and Domicile Considerations: Group captives must meet licensing and compliance requirements based on their chosen domicile (onshore or offshore). Expert guidance during formation is key.
- Potential Pitfalls: Like any shared-risk model, group captives come with potential challenges, such as uneven loss experience or misalignment among members. Clear governance structures and proactive communication help mitigate these risks.
Is a Group Captive Right for Your Business?
Group captive insurance can be a smart alternative for businesses seeking more control and cost stability in today’s volatile market. If you’re looking to reduce your insurance spend while improving your risk management strategy, it’s worth exploring this model further.
Ready to learn more about group captives? [Contact us] to speak with a risk management advisor and discover whether a captive could be a fit for your business.
© Copyright CBIZ, Inc. All rights reserved. Use of the material contained herein without the express written consent of the firms is prohibited by law. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. Material contained in this publication is informational and promotional in nature and not intended to be specific financial, tax or consulting advice. Readers are advised to seek professional consultation regarding circumstances affecting their organization.
“CBIZ” is the brand name under which CBIZ CPAs P.C. and CBIZ, Inc. and its subsidiaries, including CBIZ Advisors, LLC, provide professional services. CBIZ CPAs P.C. and CBIZ, Inc. (and its subsidiaries) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards. CBIZ CPAs P.C. is a licensed independent CPA firm that provides attest services to its clients. CBIZ, Inc. and its subsidiary entities provide tax, advisory, and consulting services to their clients. CBIZ, Inc. and its subsidiary entities are not licensed CPA firms and, therefore, cannot provide attest services.