Finding the right insurance model for your business has its fair share of challenges. The traditional market tends to keep information behind the curtain, like the Wizard of Oz. With captives, you have a better look behind the curtain, only to find multiple captive insurance models to choose from. So which one is best for you?
Single-parent and group captives might be more straightforward in the naming scheme. Cell captives are a different story.
What is a cell captive? A cell captive is an insurance setup where different entities utilize a shared structure, each having its own individual “cell” to manage its risk separately. How are they beneficial? And what are their drawbacks?
ReNu Insurance Group works with captive insurers, whether single-parent, group, or cell captives. We have high-level designations and understand the intricacies of captives. With our access to cell captives, we know their ins and outs.
After reading this article, you’ll learn what cell captives are, the basics, their benefits, drawbacks, and ideal businesses suitable for this insurance alternative. That way, you can see if cell captives are right for you or if you want to look at other captive insurance models, such as single-parent or group captives.
From here, you might wonder if a captive insurer is ideal for your business. Take this assessment before you continue to learn how captives could increase your cost savings!
Table of contents:
- What you need to know about cell captives
- Ideal businesses for cell captives
- Have you looked at single-parent and group captives?
What you need to know about cell captives
This system allows businesses to maintain individualized risk strategies with a larger captive framework. The cell captive allows businesses to “rent” a portion of an existing captive insurance company.
How do cell captives work?
In a cell captive, the core entity called the “parent” establishes a captive insurance company and creates individual “cells” for businesses to rent. Each cell is independent from one another, meaning the assets and liabilities of each cell are legally separated from the others. This is important because it allows the risks and financial results of one cell not to impact the other.
When you join a cell captive, you don’t have any ownership over the insurance company. Compare this to a group captive, where you’re a partial owner with other entities, and a single-parent captive, where your business is the sole owner of the insurance entity.
Benefits of cell captives
- Cost Sharing and Efficiency: Businesses can share the administrative and regulatory costs of running a captive, making it more affordable for smaller enterprises to access captives.
- Risk customization: Depending on the captive owner, you can customize the coverages that go into your cell.
- Control: While sharing a common structure, each cell controls its underwriting, claims handling, and investment policies.
- Regulatory flexibility: Cell captives often have regulatory advantages, as the parent captive handles much of the compliance and reporting requirements.
Drawbacks of cell captives
While the benefits for cell captives are certainly compelling, there are some drawbacks for you to really consider.
- Each cell is limited by the rules and governance established by the parent company and the domicile. Participants must also rely on the parent company for certain decisions, which limits flexibility. While you still manage your own risk, you must adhere to the parent company's overall policies and regulations.
- Entering a cell often requires upfront investment and ongoing fees such as collateral, which vary depending on the structure and domicile of the parent company.
- One last issue with cells is you don’t get as much juice for the squeeze. You still have to share risk among unrelated entities. You’re essentially buying into a pool.
Ideal businesses for cell captives
Cell captives are particularly appealing to businesses that:
- Are already spending at least $250,000 in insurance premiums.
- Have a proactive approach to risk management.
- Seek greater control and transparency over their insurance premiums.
- Have an entrepreneurial mindset.
Have you looked at single-parent and group captives?
Captive insurers aren’t right for everyone, though they might be ideal for you. Cell captives are a great tool for businesses looking to have more control and stability over their insurance needs. They offer the benefits of captive insurance–such as cost savings customization and improved risk management–without the financial expectations of a business establishing its own captive.
It could be that other captive insurance structures are better for your business. That’s why you need to read our article on the pros and cons of single-parent and group captives.
You might be wondering about your capital investment and underwriting profit for when you join a captive. Take our insurance calculator to get your results.
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