What Is A Captive Insurance Company And How Do They Work?

Risk management is a big deal to construction companies, but it can also be confusing if it is not done properly. Many construction companies choose to work with an experienced risk management organization to identify and plan for any type of risk contingency. A growing number of construction companies are starting to utilize what is known as a captive insurance company to help address their risk concerns.

What Is A Captive Insurance Company?

A captive insurance company is a legally licensed and registered insurance company that is owned by the people and companies it is insuring. In other words, a construction company can start its own insurance company to help handle the costs of doing business. The laws regarding captive insurance companies vary from state to state, but it should be noted that most captive insurance companies are based in offshore locations for convenience.

Why Would A Business Start A Captive Insurance Company?

Simply put, many construction companies feel that they are the best experts to identify and handle their own risk. A group of companies will get together and start a company that carries only the precise type of insurance the owners need, and that keeps the costs of owning insurance way down.

Since a captive insurance company is a legally licensed entity, it can also sell services to other customers beyond the owners. This gives construction companies the chance to develop another profit center that can be used to increase revenue.

Should My Business Start A Captive Insurance Company?

A captive insurance company can be a profit center and a way to save money for large construction companies that work in several parts of the world. Over the years, these companies learn to identify the best ways to handle their risk, and they also learn to identify the short-comings of working with established insurance companies.

The simplified explanation of a captive insurance company makes the process sound easy, but it takes a lot of resources to start one of these companies and a long time before the company sees a profit. But if you own a substantially large construction company, then a captive insurance company may be a good solution for you.

Other Benefits Of A Captive Insurance Company

Aside from creating custom insurance solutions at lower prices, captive insurance companies are also great ways for construction companies to make up for any deficiencies in the commercial policies they own, and develop a way to transition the company to a new management team as time goes by. Insurance premiums are also tax deductible, which means that there is a significant tax benefit to owning a captive insurance company as well.

As a risk management company, it is our job to point out all of the options available to our clients. While a captive insurance company might appear to be competition to what we do, it is actually a chance for us to work closer with our clients on making sure that they have the coverage they need.

The next time you talk to one of our experts, be sure to discuss the possibility of a captive insurance company. It is not a solution for every company, but it could be something that would work for yours.