One advantage of a group captive is that your premium calculation is simple. The calculation is based on your five-year history of incurred losses and underwriting exposures (sales, payroll, autos), rather than industry averages or the current profitability of an insurance company. Based on your history, a loss projection is developed by an independent actuary. To the degree that losses are controlled and less than the projected loss funding, any unused loss funding dollars will be returned including any investment income earned.
In other words, you will reap the underwriting profits and investment income- not the insurance company. Risk sharing, in a group captive, is defined and limited to a specific dollar amount and frankly far, far less than any traditional market approach where all of your profit potential is sacrificed to the insurer.
The size of your group provides you the buying power and leverage needed to cost effectively purchase insurance for your business and the group as a whole. Mature groups will have total group premiums in excess of $20 million and have very significant buying power. This is a tried and true approach that has been utilized since the early 80’s.
You may be wondering- Why then, hasn’t my agent ever brought this to my attention, or even mentioned? The answer- I’ll give them the benefit of the doubt and say that the vast majority of agents have no experience or understanding of the loss sensitive market offerings generally, even less the specific option of a Group Captive. So, their natural inclination is not to discuss that which they know very little about and if asked, they will, again generally, offer the following inaccurate assessment: It’s too risky. You’re too small. You don’t want to share risk with businesses you don’t know. So, let’s play golf or have lunch and forget about it.
If you fall victim to this response, one- your not alone, some have missed an opportunity to join based on trusting in a long term advisor/agent/friend that unfortunately does not have the experience to offer sound counsel on this particular topic whether they be a small independent agent or a National Broker. Don’t be that Owner, CEO, CFO.
Group Captives are not for everyone. They exist for and are owned by those businesses and owners who have a strong belief in safety and loss control and who also desire greater control over the claims management process. They must be financially sound. Each member’s financial statements are reviewed prior to a proposal of membership. Those who follow best practices within their industry and carry a mindset of seeking efficiency and profitability and either have or are building a track record of success will most likely qualify.
The process of qualifying is very simple and straight forward and takes far less time than the traditional 60 or 90 day cycle of the typical renewal season. An estimate of premium and loss funding can be produced for discussion and consideration within hours of the provision of some very basic historical information.