May 02, 2020

What Industries Can Use a Captive Insurance Company

5 min read

R. Wesley Sierk, III ; Managing Director, Risk Management Advisors

What Industries Can Use a Captive Insurance Company

Unsurprisingly, many firms can benefit greatly from opting for the captive insurance structure. This can go a long way to improve their performance and risk management, not minding what industry or sector they belong to. Companies from every sector can benefit from the captive structure because it is efficient in managing their enterprise risk structure. It is common to see more captive management partners in the manufacturing and construction industries than in others. This is because the captive structure works efficiently in its risk management structure.

Being involved in the innovative insurance structure, we can state that captive insurance arrangements are typically deductible, and they are fantastic for those organizations that need private insurance solutions. The advantages of strategic risk management solutions are reaped by those organizations that understand the benefit of this private insurance program management.

What is Captive Insurance?

For those who do not understand what a captive insurance structure is, we will explain it in more detail. Captive insurance is a uniquely formed kind of self‐insurance used by organizations. In this case, the insurer owns the insured. This means that instead of utilizing regular insurance companies, the insured can create one for itself, making the company both the insurer and the insured.

Is it legal? One may wonder.

Of course, it is.

This is a legal arrangement and is licensed by the government. When we talk about a captive insurance structure or firm, we mean a company allowed to insure some properties and casualties. It is important to note that not every risk can be managed under the captive insurance law. Your company will still be expected to transfer risk with traditional insurance coverage when some risks are concerned. Regarding worker’s compensation, the captive insurance law doesn’t permit this. In essence, what a captive insurance structure does is supplement that coverage in such a way as to manage grave risks.

Industry Applications and Current Usage

It is common to see Fortune 500 companies looking for creative and innovative ways to clamp down on their costs, properly manage their risks, and increase their market share in their sectors. Many of the companies under this league have been using the Captive structure. Large corporations use this insurance structure to clamp down on how much they pay to insurance companies. We will always advise large corporations to explore these opportunities and save on costs.

The significant aspect of the captive structure is that it can be opened in offshore tax havens. Small companies can also make use of this opportunity and benefit from it. Usually, captive insurance companies are created in areas that will significantly help the captive’s business. Do you know captive insurance companies have existed for over thirty years? A select few commonly used them. Now, any company with stable and profitable earnings should consider cutting its insurance costs using the captive structure.

Ideal Candidates for a Captive Insurance Structure

Usually, manufacturing and construction firms are the perfect candidates for a captive structure because of how expansive their business risks are, but times have changed. Any firm can now benefit from this structure. There are several criteria that your firm may need to meet before they can successfully benefit from this.

It should be a profitable organization that wants more adjustable tax deductions. Big organizations love this structure because they can claim more on annual tax deductions.
If your organization has multiple entities or subsidiaries, it should consider using the captive structure for risk management. This risk transfer concept will significantly reduce the costs of insuring the risks in these subsidiaries, ventures, and affiliates.
As long as you are a business that earns at least five hundred thousand dollars in operating profits, this structure may be perfect for you. Companies that earn that much are constantly seeking ways to cut costs and mitigate risk in commercial activities.
If your company has requisite risks that are not insured or seem to be underinsured, a captive insurance structure can help.

Qualification Requirements

If your business seeks asset protection, it can use the captive insurance structure to manage its risks. In smaller firms, using traditional insurance schemes may do the trick for them. The same can’t be said for a fast-growing or large organization. If your risk portfolio needs more than what is offered by conventional insurers, then you are in the right place. We have a myriad of tax and audit experts who can tailor and make the right one for you.

Find out if a captive insurance company is right for your business.

Take the assessment to learn more:

https://www.riskmgmtadvisors.com/captive-insurance-fit-assessment

The contents of this article are for general informational purposes only and Risk Strategies Company makes no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information contained herein. Any recommendations contained herein are intended to provide insight based on currently available information for consideration and should be vetted against applicable legal and business needs before application to a specific client.

R. Wesley Sierk, III ; Managing Director, Risk Management Advisors

Wesley Sierk is a recognized authority in the realm of captive insurance company design and management. As Managing Director and Lead Strategist for Risk Management Advisors, Inc., he possesses an unmatched track record that spans nearly 30 years, with a focus on empowering profitable, closely held businesses. Wesley's expertise isn't just limited to consultation; he's profoundly adept at strategic implementation. He has partnered with leading homebuilders, real estate developers, manufacturing enterprises, and professionals in sports and entertainment, providing them with unparalleled insights and solutions. A hallmark of Wesley's career has been his unwavering commitment to his education. He holds esteemed designations like the Chartered Financial Consultant (ChFC) and Chartered Life Underwriter, both awarded by the American College since 1996. Further amplifying his credentials is the CRIS (Construction Risk and Insurance Specialist) recognition, secured in 2006. Notably, he's among the rare individuals globally to have earned the Associate in Captive Insurance (ACI) designation, a testament to his profound understanding of the subject. Beyond his direct work with clients, Wesley takes immense pride in working hand-in-hand with other professionals, including CPAs, Attorneys, and Financial Advisors. This collaborative approach ensures thorough due diligence and optimal plan design implementation. An accomplished author, Wesley has penned critical works like Taken Captive: The Secret to Capturing Your Piece of America's Multi-Billion Dollar Insurance Industry and You Can Make It, But Can You Keep It?. The latter serves as a guiding light for the affluent, teaching them strategies to preserve their hard-earned assets. In the realm of speaking engagements, Wesley is a coveted name. Whether it's insurance industry gatherings or legal and accounting symposiums, he's regularly called upon to demystify the intricate dance between traditional insurance markets and the potential of captive insurance entities. Under Wesley's leadership, Risk Management Advisors remains a beacon of innovation, committed to elevating clients' financial well-being and mitigating risks in an ever-evolving landscape. He is married to Leslie and has two 'not so young' children. Their son is attending the University of Tennessee studying entrepreneurship and risk management. While their daughter finishes up her high school years. They love to travel, golf, cook and hike with their two huge dogs.