It’s not as evil as it sounds, really, but captive insurance can raise some question marks for people. Especially when it comes to what it is? It’s basically an insurance company that is owned by its insureds, or the people covered by the insurance. It might sound a little risky, but it does have some advantages for people.
The people who invest in captive insurance put their money on the line for the company, that way they can have control. However, when the insurance company makes a profit then the owners get a share of the surplus money.
The Captive insurance companies can either be owned by a group of people or will be sponsored by another company. In both cases, insureds will have to put their money up and at risk to get things started, but there are more benefits to be had for the risk.
The insureds also work away from traditional companies and their regulations that are often strict on the actions of insureds. Leaving the more traditional restrictions behind will help people get more coverage, have more options available to them, and simply have more control over what they pay for their insurance.
The stability, control, and excess surplus money are often worth the risk for people who don’t have a more traditional plan with regular insurance. For larger companies, they often sponsor or encourage captives to share risks.
Creating a Captive Insurance company requires a lot of research, time, and risk. However, the larger risk will often translate to a larger reward as well as control for the insureds over their finances, coverage options, and plans.
This is also why businesses will release smaller companies as Subsidiary captive insurance companies, to ensure that their own costs are controlled and their profits stabilized.