When it comes to insuring risk, do you find yourself asking why your business has to be at the mercy of the decisions and settlement timelines of an external power with little or no room for negotiation? The short answer is that the traditional insurance model relies on standardized processes for handling claims.
In contrast, with captive, the insured business owns the insurance provider. This means that the insurer has intimate knowledge of the unique needs of the policyholder and a vested interest in their mutual success. In addition to providing the tailored coverage and financial advantages of effectively keeping the insurance provider in-house, this model also allows for a customized approach to claims management. ReNu has expert insight into how to leverage this to your optimal advantage.
This article provides a comprehensive overview of how captive claims work and is directly linked to our related article and video (provided below) about how traditional insurance and captives differ in their policies.
How does traditional insurance manage claims?
The standardized approach that traditional insurance takes to manage claims includes three main elements that can create unnecessary headaches for business owners. These include:
- standardized claims handling;
- limited policyholder involvement; and
- the potential impact of loss experiences on future premiums.
Standardized claims handling
With traditional insurance, claims are typically handled based on predefined processes and guidelines, and insurers follow standard procedures to evaluate, process, and settle claims. While this approach ensures consistency across a broad range of policyholders, it may lack the flexibility to address unique aspects of an individual business or a particular group of businesses.
Limited policyholder involvement
With traditional insurance, policyholders have limited involvement in the claims process. An adjuster, employed or contracted by the insurance carrier, takes the lead in investigating, assessing, and settling claims. As a policyholder, the insured business relies on the insurer’s expertise and decision-making, which may not always align well with their business priorities.
Potential impact of loss experiences on future premiums
With traditional insurance, claims always have the potential to impact future premiums. Frequent or significant claims may result in higher premium rates upon policy renewal, and the decision on whether and how the loss experience affects future pricing is made solely at the discretion of the external insurer.
How is captive insurance claims management different?
Some of the features that set captive insurance apart from traditional insurance in the area of claims management include:
- customized claims handling;
- control over settlements;
- incentives for loss control; and
- a unique insight into data claims.
Customized claims handling
With captive insurance, claims management is specifically tailored to the needs of the captive owner(s). Since captives are owned by the insured, the insured has a vested interest in efficient and fair claims handling. This means personalized service, more flexibility, and faster response times.
Control over settlements
Captive insurance ownership provides greater control over claim settlements. Because the insured also owns the insurance company, the adjuster works on behalf of the insured to achieve the best possible outcome. This allows for more flexibility in negotiating settlements that align with the specific objectives of the policyholder.
Loss control incentives
Captive insurance encourages proactive risk management and loss control measures. By effectively managing risk, the captive owner or members can reduce the frequency and severity of claims. This benefits both the profitability of the captive and the long-term financial stability of the parent business(es).
Claims data insight
Captive insurance provides valuable claims data that can be analyzed to identify patterns, trends, and areas for improvement over time. This data-driven approach enables the captive owner or members to make informed decisions regarding risk mitigation strategies and prevention measures.
If you are not sure how much you would pay in claims in a captive compared to a traditional insurer, try out our captive insurance calculator.
Do captives also take a different approach to policies?
With respect to claims management, traditional insurance follows standardized processes with limited policyholder involvement and the potential for general loss experience to impact the cost of insurance coverage for individual businesses. In contrast, captive insurance offers customized claims handling, greater control over settlements, incentives for loss control, and valuable insights into claims data.
To fully understand how captive claims management works, it is important to also learn about the unique policy features of captive insurance ownership, which are explained in:
You might be wondering how your business would perform with a captive. Take your captive assessment to get your results.
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