It is no news that many firms can benefit a lot when they opt for the captive insurance structure. This can go a long way to improve their performance and risk management, not minding what industry or sector that they belong to.
Companies from every sector can benefit from the captive structure because of how efficient it is in managing their enterprise risk structure. It is common to see captive management partners more in manufacturing and construction industries than in others. This is because the captive structure works efficiently in its risk management structure.
As someone that been involved in the innovative insurance structure, I can state for a fact that captive insurance arrangements are typically deductible, and they are awesome 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 of us that do not understand what captive insurance structure is, we will explain more about this.
Captive insurance is a uniquely formed kind of self‐insurance used by organizations. In this case, the insurer owns the insured. What this means is instead of utilizing the regular insurance companies, the insured can decide to 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 licensed by the government.
When we talk about a captive insurance structure or firm, we mean a company that is 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 do risk transfer with traditional insurance coverage when some risks are concerned. In the case of worker’s compensation, the captive insurance law doesn’t permit this.
In essence, what a captive insurance structure does is to supplement that coverage in such a way to manage graver risks.
What Organizations Currently Use Captive Structure?
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 make use of this insurance structure to clamp down on how much they pay on insurance companies. We will always advise large corporations to explore these opportunities and save on costs. The great 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 those areas that will benefit the captive’s business a lot.
Do you know that captive insurance companies have been in existence for more than thirty years? They were normally used by a select few. Now, any company that has stable and profitable earnings should consider cutting their insurance costs by using the captive structure.
Ideal Candidates For Captive Insurance Structure
Usually, manufacturing companies and even 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 a number of 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. The main reason big organizations love this structure is that they can claim more on their annual tax deductions.
- If your organization has multiple entities or subsidiaries, it should consider using the captive structure for its risk management. This risk transfer concept will go a long way to cut down on the costs of insuring the different risks in the different 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 always seeking for ways to cut down their costs and mitigate risk in commercial activities.
- If your company possesses requisite risks that are not insured or seem to be underinsured, a captive insurance structure can do the trick for you.
If your business is looking for asset protection, it can also successfully use the captive insurance structure to manage its risks. In smaller firms, using the traditional insurance schemes may do the trick for them. The same can’t be said for a fast growing or a 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 that can tailor make the right one for you.