How Captive Insurance is The Way to Go for Middle Market Companies
Before we dive straight in with the term captive insurance, let us clarify what being a middle-market company is all about. Middle market companies are companies that are larger than small businesses, yet smaller than big businesses, thus being in the ‘middle’.
Middle market companies are also coined as middle due to the size of their assets, the number of employees and the amount of revenue they generate annually. A typical middle-market company can earn an annual revenue of $15 million to $1 billion.
Whether it is a small business, large business or a middle-market business – the stakes are always high when it comes to incurring losses. No matter how much is invested in carrying out primary research and planning, owners of such businesses are always taken aback when faced with the unexpected.
Successful middle market companies incorporate intentional and comprehensive risk management initiatives and structures. For this very reason, middle-market companies plan out proper ways that will ensure their business and help bring about alternative risk management solutions. How do they do this? By establishing a new business—a captive insurance company.
What is Captive Insurance Anyway?
It is an insurance company that is owned and controlled by its insureds; its primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer’s underwriting profits. There are many types of “captives”. The 2 most common for a middle market company are either a group captive or what is typically referred to as a “pure” captive. Group captives insure the risks of a group of unrelated insureds with these risks typically covering common commercial insurance policies such as workers compensation, auto, general liability among others. A “pure” captive is established to insure the risks of related insureds. These captives will typically insure 1) commercial policy exclusions, deductibles and excess limits 2) commercially available coverages such as cyber, directors & officers, errors & commissions, equipment breakdown and 3) more unique risks such as loss of key relationships, supply chain disruption, reputational, fortunitous litigation, intellectual property, legislative and regulatory change.
The purpose of captive insurance is to maximize the benefits of traditional commercial insurance more cost effectively and to intentionally establish insurance reserves for the risks that when they occur tend to be significant and potentially detrimental to the business. There are many benefits to incorporating a captive insurance company into a business’ risk management program
At Montpelier, we design, implement and oversee captive insurance solutions for middle-market businesses. Further, for our clients, we become and are their “captive business office” leveraging our experience to maximize the benefits of this new business of captive insurance so that the business owners are freed up to focus on their core business. If you are middle-market business and wish to learn more about how to get started with captive insurance, please contact us for an appointment through our email katkinson@montpelieradvisors.com.