capacity, based on certain industry segment restrictions or line of business performance outcomes, such as commercial automobile line of business difficulties.
Often, these are marketdriven restrictions generated by consistently underperforming lines of business. There are four elements that comprise key considerations for CR / ST owners to consider when evaluating alternative risk financing / captive options including:
Strategic Elements:
• Creating a defined platform for implementation of an integrated risk mitigation strategy.
• Setting the provision for risk mitigation discipline in all crane-rigging-transport operations.
• Establishing formalized risk retention levels with customer organizations.
• Utilize“ A-Team” risk resources to support captive profitability.
Financial Elements:
• Participate in underwriting profits and investment income.
• Maintain provisions for unknown losses.
• Develop a true risk profit center mechanism.
• Create stability and consistency in captive program results.
Operational Elements:
• Having direct access to reinsurance markets.
• Maintaining a dedicated focus on practical risk management.
• Direct engagement with independent claims administrators.
• Creation of subject matter expert risk resources.
Marketplace Elements:
• Remove premium level volatility.
• Resolve coverage restrictions.
• Eliminate coverage capacity challenges.
• Stabilize coverage pricing and long-term affordability.
Advantages and Disadvantages of Captive Insurance
The formation of an insurance captive is complex and requires careful consideration of multiple factors, including tax implications, regulatory environment and operational considerations. Before deciding whether an insurance captive is the ideal solution for your company’ s risk management needs, it is important to carefully weigh its advantages and disadvantages.
One of the main advantages of forming an insurance captive is that it can measurably reduce your annual insurance spend. This cost reduction is achieved by self-insuring some of your risk while transferring other risk to third party reinsurers. In addition, you will incur reduced cost when claims are mitigated via your unbundled risk mitigation resources.
Additionally, the captive structure allows participation in investment income that will
CAPTIVE INSURANCE MARKET GROWTH
• Captive growth continues today, accelerated by increased innovations in risk mitigation solutions including data, software and artificial intelligence.
• There are more than 6,000 active captives today, including more than 2,000 captive cells.
• Between 2019 and 2023 the global captive market increased 24.8 % as an offset to deteriorating traditional insurance market conditions.
• The global market for captive insurance surpassed $ 200 billion in premiums in 2023.
• Demand remains strong for captive solutions with noticeable increases lately due to persistent traditional market condition challenges.
• Increased demand for“ unbundled risk services” allowed in captive insurance structures is also driving growing interest in captives.
reduce your overall cost of risk by inherent design embedded in the captive insurance structure.
Insurance captives also offer companies access to more competitive pricing options than traditional insurers while providing greater control over claims-handling processes, and captive plans have potential tax benefits to customers.
On the other hand, there can be drawbacks with captive set up costs, possibly including capitalization requirements. Additionally, formation expenses and regulatory requirement costs for some captive structures can be cost prohibitive, unless you are considering an agency captive structure whereby these are common costs of doing
8 May 2, 2025 www. contractorshotline. com