Companies in the captive insurance industry, also known as captives, are nontraditional insurance companies that, either individually or as a group, provide themselves insurance coverage so that they can specifically target their own needs rather than relying on the specifications of companies that are traditionally utilized for insurance purposes. A few reasons why it may be advantageous for companies to use captive insurance include when higher pricing stability is needed and when a wider range of insurance coverage is needed.
Need for Price Stability
With the ability to be in control of one’s own insurance coverage, captives are, over time, much of the time able to stabilize their prices effectively, which can make this type of insurance beneficial to certain companies that need this type of price stability in their coverage. The insurer may be able to minimize fluctuation in prices with this type of insurance so that prices are not constantly changing in unpredictable ways.
Need for Wider Coverage
Commercial insurance can sometimes be at too high of a price and not specific enough for a company’s needs to be of adequate benefit to the company. However, in the captive insurance industry, enough insurance can be provided to cover a broader area of the company’s needs because it can cover only what the company needs covered and not areas that do not apply to the company. It is important, though, to evaluate the risks of captives before making the decision to create this type of insurance company so that whatever decision a company chooses will be the best suited for their specific needs.
In a few instances, captives can be a very helpful way for companies to handle insurance coverage. These instances include when it is important for companies to have stable prices and a wide range of coverage that is specifically tailored to their needs. For some companies, captives may be the best solution to problems with traditional insurance coverage.