Captive (Re)Insurance, also known as self-insurance, is a sophisticated risk management strategy utilized by large corporations to manage their insurance needs internally. This approach involves the creation of a dedicated subsidiary, known as a captive insurance company, which is wholly owned and controlled by the parent company. The ultimate goal is to provide tailored insurance coverage for the specific risks faced by the parent company and its affiliates.
The captive insurance company operates similarly to a traditional insurance carrier, offering coverage, policy issuance, and claims management. However, it differs in the fact that it exclusively serves the insurance requirements of its parent company and related entities, unlike commercial insurers that serve many clients across various industries.
One key advantage of captive (re)insurance lies in its ability to customize coverage and premiums to meet the specific risk exposures faced by the parent company. This approach allows for the alignment of insurance solutions with the overall risk tolerance and risk management objectives of the organization. By retaining the risk internally, businesses can gain increased control over their insurance programs and respond more effectively to their unique risks and risk appetite.
From a financial perspective, captive (re)insurance can also provide cost efficiencies. By eliminating the profit margin built into premiums charged by traditional insurers, captive insurance companies can potentially save on insurance costs over the long term.
Captive (re)insurance can cover a wide range of risks, including property damage, business interruption, product liability, professional liability, and employee benefits. Depending on the regulatory environment, captives may also have the opportunity to provide reinsurance to other insurance carriers, further enhancing their risk management capabilities and potentially generating additional revenue streams.
Overall, captive (re)insurance offers numerous benefits to large corporations seeking to optimize their risk management strategies. By establishing a captive insurance company, organizations gain greater control, flexibility, and cost savings while tailoring insurance solutions to their specific risk profile and business needs.