Some companies out there today think about the insurance world in terms of duty. They know they must get insurance, they find a decent company to handle their policies and they let things slip out of mind. As a result, many companies find themselves losing money through insurance policies that are simply too expensive. There is tremendous room currently for companies to save cash and get better coverage as well. The captive insurance industry has picked up on this and is currently offering a new way for companies that want to break the mold.
The captive insurance coverage industry is all about providing insurance in a more efficient manner. Some of the middle men are taken out of the equation so that more of the pooled money placed into the policy will be repaid. Some companies understand just how much the traditional insurance industry is taking off the top. That’s great for the insurance companies, but what if there was a better way of doing business? This is what captive insurance schemes look like, and it’s why more businesses are mitigating risk through these insurance schemes.
The captive insurance model is generally quite easy to understand. Namely, the model is defined by insureds having collective ownership over the company itself. It is a novel concept, allowing people to own their own insurance company so that there are not perverse incentives in the insurance game. Underwriting is a game that brings profits to the coffers of traditional insurance companies. They figure out not only the true chances of something happening, but also how much a person will be willing to pay for a policy. Captive insurance companies are owned by the insureds, so the money that would have gone to the pockets of traditional insurers will go to the insureds in that case.
Some think of this insurance style as hedging. If the insurance world is really just a betting market, people are using coverage to protect themselves. By owning their own insurance company, those in the captive insurance world are then getting something back on the back end when the captive company makes a profit. It’s novel, and it’s changing the way people do business today. Moving forward, it would not be a surprise to see many more businesses decide that captive insurance provides them with the proper benefit for their cost.