Frequently Asked Questions — General
What is a Captive Insurance Company?
A captive insurance company is a corporation formed either in the United States or in a foreign jurisdiction for the purpose of writing one or more lines of insurance to a small (and usually related) group of insureds. While the benefits of a captive insurance company may be many, the principal goal is to reduce frictional costs of third party insurers and/or provide coverage otherwise unavailable.
What is an Alternative Risk Financing Program?
Alternative risk financing programs are ways in which a Company can take control of its insurance needs outside of traditional third-party insurers. They include self-insurance programs and captive insurance companies.
What is a Self-Insurance Program?
Self insurance is an alternative risk financing method whereby a risk is retained by a company and funds are formally reserved to cover future losses. The amount reserved is calculated using actuarial and insurance information and, similar to an insurance premium, should be adequate to cover projected future losses. Organizations can gain more control over the cost of risk by retaining a share of their loss exposure. In addition, they may be able to improve coverages and limits, enhance claims management and loss control, and gain cash flow advantages.
What are the Advantages and Benefits of a Captive Insurance Company?
The advantages and benefits of creating a captive include:
- Stabilize the cost of insurance
- Reduce frictional cost
- Obtain insurance not otherwise available
- Custom design the type and level of coverage to fit needs
- Control the claims process, particularly in litigation with third party insurance companies
- Benefit from good claims experience and provide an incentive for improved risk management
- Have investment control over the Captive's assets
- Have access to the reinsurance market
- Consider possible estate planning, business succession and income tax opportunities
How do I know if an Alternative Risk Financing (ARF) program is right for me?
If you are finding that traditional insurance is unaffordable or specific coverage is difficult to obtain then you should explore alternative risk financing programs. A Captive Feasibility Study will assist you with evaluating the potential benefits and costs associated with this type of program.
What is a Captive Feasibility Study?
This term refers to an in-depth analysis to explore the merits of employing the captive insurance concept to manage and control your insurance risk. In short, this study allows you to determine if utilizing a captive is right for you.
What is my next step?
You should contact GPW and Associates, Inc. (GPWA), an Arizona based consulting firm, whose Principals have over 100 years combined experience in the actuarial and insurance consulting field. GPWA and its subsidiary GPWAS have the knowledge and expertise to assist you in the complex field of ARF.
Call us at 602.200.6900 or e-mail us here
2700 North Third Street, Suite 3050, Phoenix, Arizona 85004-1129