Monthly Archives: March 2010
Captive Management
Captive Management or the risk management is the way or the process of a captive insurance company which can invest income on premiums and reserves, coordinate the work of contracted services providers, and immediate benefit from improvements on loss control and claims experience, among other responsibilities. The company basically forms its own insurance company and can gain greater control by owning their own assurance group. The International Risk Management Limited (IRML) in Bermuda in 1962, was the first captive management company created by the “father of captive insurance”, Frederic M. Reiss. Most of the captive management is usually outsourced to a captive manager that holds the primary license for the captive. Some of the advantages in using captives to provide better risks management are: Cost, Flexibility, Claims management and Claims experience benefit.
Cost. The premiums charged include amounts to cover the insurer’s profit. Low cost of reinsurance allows the captive to build its reserved base.
Flexibility is taking the advantage of appropriate portions of its risks whether on a soft or hard market.
Claims management is the process of handling the cutting down on delays and bureaucracy that are often part of the claims handling procedure of insurers.
Claims experience benefit is when claims experience is better than anticipated, the excess net premium is retained by the group.
There are numbers of companies and affiliates focusing on captive management that offers full-line of insurance products, as well as commercial property, specialty risk and worker compensation, most of these groups are available to some of the main captive domiciles such as; the United States, U.K, Bermuda, Singapore, British Virgin Islands, and more.
Captive management indeed is a tricky business that needs expert schemes, planning and strategical handling, which could contribute in the overall success of the insurance company.
Captive Insurance
The term “captive” comes from Frederic M. Reiss, the “father of captive insurance”, who brought his concept into practice for an industrial client at Ohio in the 1950′s.
A captive is a type of an insurance company that protects the risks of its owners. Basically, it is owned and controlled by its insured’s, although they sometimes insure risks of the company’s clients as well. It has similar tasks to traditional insurance companies, such as; buying reinsurance, invests premiums, issuing policies and pays claim.
There are several common types of captive insurance. One is the Pure Captive or the Single Parent Captive, which is formed primarily to insure parent or affiliated companies. Another type is the association captive, owned by a trade, industry or group for the benefit of its members. Agency captives, is a company owned by an agency or a brokerage that insures a portion of their client’s risks through the agency or brokerage. Rental captives, which provide ‘captive’ facilities to others with a fee, while protecting itself from losses under individual programs. It is also formed to contract policyholders to insure the risks of such policyholders.
Captive Insurance is restricted to writing coverage such as auto liability, general and professional liability, commercial property and employer’s liability. In a captive application, there is little information needed:
- Checklist of Application
- Summary of the business plan
- Application fee of $500 and certificate fee of $300
- Feasibility study or detailed plan of operation
- Articles of incorporation and participation or shareholder agreements
- Biographical affidavits for the officers, directors and legal counsel
Generally, in law and economics, insurance is a form of risk management. It is a transfer of risk from one entity to another, in exchange for a premium, and can be a guarantee to prevent a possible devastating loss.
Choosing Your Captive Manager
Captive Managers are the personnel in a captive insurance company that brings together various disciplines in the areas of; regulation, financial, accounting, auditing, risk management, legal, etc., making sure that the captive insurance company performs successfully. Captive managers and the staff must be skilled in these areas. Proper and appropriate trainings would be sufficient and individual credentials must be reviewed as well.
Some of the areas of expertise that an effective captive manager should posses are;
- He should be equipped with various skills that are necessary to provide you with the needed services. If possible, he must be capable of doing claims, tax preparation, cash management, underwriting, policy management, loss control, and reinsurance.
- A captive manager should be able to understand the risks involved in your business and should be able to come up with different policy proposals to prevent from any business risks to occur.
- You can verify the previous performance of the person and make sure that he has a great record. By asking his previous clients that he worked with, you may verify his professionalism and reliability. It helps if you find out some important if the person is a CPA, the duration that he’s been in this field, or how many clients does he presently handle. Doing a careful background check of the person is the best way to find out that he’s a good captive manager.
- It pays to know the background, the experience and the skills of the prospect since it should also reflect on the price that you’re going to pay for this person’s service. You shouldn’t be deceived with the cheap prices offered since most of them have hidden charges. In the end, more fees will be acquired. Choosing your captive manager can be somewhat meticulous, however, if you hire the right one, you’ll be the one who benefits in the end.
