South Florida Hospital News
Wednesday August 5, 2020
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April 2014 - Volume 10 - Issue 10
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Captive Threshold Under $1,000,000 in Combined Premium

Today, any professional, industrial organization or association that is paying $850,000 or more in combined Property and Casualty premium should verify if the numbers work to establish their own Captive Insurance Company.
 
Years ago, it was a common thought that all the advantages of a Captive were reserved for those entities paying $10 million in premiums or more. Only the largest firms could realize the many benefits of owning their own Captive Insurance Company. That simply is NOT true today.
 
Healthcare providers and many other industries are taking advantage of Captive ownership.
 
The first Captives were formed in the 1920’s. There are over 5,000 Captives, a majority of which are U.S. owned. Today the majority of States have Captive Legislation on the books, regulating these options for mid-sized and larger professional and industrial organizations. There are plenty of good reasons why 50% of the Fortune 500 companies own a Captive.
 
A Captive is an insurance company that insures the risks of its owner, affiliates, or a group of companies. It issues policies, collects premiums and pays claims. Put simply, it is an alternative risk transfer vehicle regulated through the state in which the Captive is domiciled.
 
Ownership options vary: share holder, key employees, family, Estate Plan Trusts, all can own a Captive and reap the cost savings and tax benefits of such. If you have a stable income and have invested in methodologies to avoid and manage your risks, why should your good controls solely benefit your insurance carriers? Those management investments to better control your workers compensation, medical liability and general liability costs are meant to protect your workforce and clients but also to lower your cost of doing business. These days lowering your fixed costs are a must and all avenues need to be examined. That is why your risk management costs and efforts should directly benefit you and your bottom line. A Captive is a way to accomplish this.
 
There are many reasons that they are appealing. Not only can it reduce your insurance costs, it can add stability to your insurance budget. You now have direct access to the re-insurance market. You use re-insurance carriers for catastrophic protection and that insurance market is far less susceptible to the normal cyclical swings of the retail property and casualty markets. Ever had a Claim dispute with your carrier? Since you own your Captive, you control the claims handling and data collection. Instant access in real time to your data is always a great tool for risk management.
 
It should be pointed out that not all companies should or can develop their Captive. If you do not have a risk management philosophy nor program in place, or you are a transactional shopper for insurance coverage, forget a Captive. This is running your own insurance company and it will look, act and feel like a real insurance company with all the attendant components of underwriting, claims, risk management etc. You can set it up in-house, however there are Captive Management companies that will help you with the administration and needed support,
 
So, make certain that when you do your due diligence, seek those who have a long history of establishing and running these programs. The good news is that they are available to many who never thought of investigating their own Captive.
Thomas B. Kernan, Century Risk Advisors, Vice President, Commercial Division, can be reached at Tom.Kernan@centuryra.com.
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