Group captives are owned by their respective members. They embrace a risk-reward model that allows members to gain transparency, control, and stability over their insurance costs.
Now that traditional insurance options are no longer the only option, more and more businesses are considering captives. But deciding whether your business would be a good fit for a captive isn’t so much about the type of business you own, as it is about your outlook as a business owner, the general mindset of you and your management team, and the financial stability of your business.
For example, do you have entrepreneurial qualities? Do you have a proven track record for safety consciousness with an above-average loss history? Do you want to have flexibility and control over one of your largest expenses? Does your business enjoy long-term financial strength and corporate stability? Are you interested in owning your own insurance company with other like-minded business owners?
After considering all of these questions, the bottom line will be to ask yourself, “When it comes to insurance, am I ready to bank on my business”?
One of ReNu’s top priorities is helping business owners become as informed as possible about captives before making a decision about owning one. This article explores these and other questions that you’ll need to consider before deciding whether to take the next step on the path to captive ownership.
Mindset of the business leadership
Many successful captive members have an entrepreneurial mindset—they’re motivated, forward-thinking, assertive, and innovative. They have the ownership mindset needed to take ownership of their risk, and they embrace the kind of risk-reward trade-off that comes with captive ownership.
Being motivated and forward-thinking, they are deeply engaged in the success of their business, from strategic planning to considering and implementing innovative solutions to ensure continuous improvements across all facets of their company. They prefer to be in the driver’s seat when it comes to how their money is being spent and how their risks are being managed, and they’re tired of paying for the poor risk management of other policyholders.
Many business owners with the entrepreneurial mindset are turning to captives because they’re fed up with “class” underwriting. For example, more and more, certain construction classes are being targeted for large renewal premium increases even though the top performers are experiencing low claims. If this is happening in your industry and you don’t want to keep paying for your competition’s mistakes and inability to manage risk, then you might want to consider joining a captive.
Ultimately, the business owner best fitted to join a captive is informed about, prepared—and able—to invest the time, energy, and effort it takes to be a profitable captive owner.
How does entrepreneurship fit with the group captive model?
Group captives attract safety-conscious companies and provide extensive resources to help members continue to successfully manage risk. Captive members are fully engaged in reaping the benefits of networking with like-minded business people and strategic partners who deliver valuable solutions. They are invested in controlling losses and are accountable to one another for the overall success of the group.
As a classic example of strength in numbers, this kind of commitment naturally leads to greater profitability and financial strength, and better corporate stability overall.
Financial stability of the business
While there isn’t a single, ideal, “cookie-cutter” profile for the companies that join a group captive, the organizations that find the most success in the captive model do share several characteristics.
In addition to having an entrepreneurial mindset, successful captive owners have enjoyed long-term financial strength and corporate stability. Group captive members commonly pay annual casualty premiums greater than $350,000 (minimum $150,000), many between $650,000 and $2 million, with some paying as high as $5 million or more. Also, their management teams are committed to safety, they have solid safety and risk management programs in place, and their loss histories are better than average for their respective industries.
For example, one of the things the risk committee looks at when considering a new applicant for captive ownership is the company’s claim history over the past five years. They will want to see if premiums have consistently exceeded their claims, to determine whether the business has already established the kind of strong, well-supported risk management profile expected of a profitable captive owner.
When should I NOT consider entering a captive?
If you are considering the possibility of joining a captive, it’s crucial that you first learn all of the potential benefits and challenges that come with captive ownership. Taking that leap without understanding the time, energy, and effort it will take can result in a less-than-positive, and/or very costly experience. As with any other new area of interest you might think of investing in, partnering with an expert who understands all aspects of captive insurance might be the most important part of the equation.
If you believe you might be a good candidate for captive ownership, and that the captive option might be a good fit for your company, the next thing you will need to look at is What are the advantages and disadvantages of owning a captive?
If you’re not sure whether your business would be a good fit for a captive, our insurance specialists are available to discuss any questions you might have.
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