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Captive Insurance Companies

Business owners are presented several, and often complex, options for financing risk associated with operating a business in today’s environment. Most address this risk by simply purchasing commercial insurance from a third party company. Often, due to the lack of availability of commercial insurance or excessive cost of such coverage, the business owner is compelled to investigate alternative risk financing solutions.

Captive insurance is one type of alternative risk financing solution that addresses areas of risk the operating business has decided to self-insure. When properly organized and operated, captive insurance provides several benefits to the operating businesses and their owners. Generally, a captive insurance company issues policies covering the self-insured risk of companies related to it through common ownership. Similar to commercial insurance coverage, the captive issue policies and pays claims, while the operating company pays premiums. Reserve requirements apply to ensure the captive meets its legal obligations and covers applicable expenses.

Many risks a business often self-insures for can be insured through a captive insurance company. Such risk types include:

  • Director’s & Owner’s Insurance (D&O)
  • Contract Claim
  • Intentional Acts
  • Punitive Damages
  • Cyber-Liability
  • Tax Audits
  • Construction Defects
  • Mold
  • Earthquakes
  • Deductibles
  • Exclusions

Businesses interested in creating a captive insurance company should also consult with their legal and tax advisors to determine suitability.