Captive Insurance 101
Captive insurance, traditionally a form of self-insurance, has emerged as a powerful alternative to standard business insurance. Whereas the majority of companies rely on external insurers, captive insurance allows businesses to create their own insurance company to cover their specific risks. Captive insurance offers potential benefits such as cost savings, customized coverage, improved cash flow, and potential tax advantages.
How does it work? A parent company can create a captive (best thought of as its own company), which assumes the risks of the parent and potentially other affiliated businesses. The captive then assesses the business's risks, determines and collects appropriate premium amounts from the parent business. The premiums paid by the operating business are then invested by the captive to generate returns and further strengthen its financial position. In the event of covered losses or claims, the captive utilizes the collected premium as a source to pay for expenses, providing the operating business with direct funding.
Other types of captives: Captive insurance sounds pretty cool, right? Well it gets even better – you don’t have to do it alone. Similar, like-minded businesses can come together to form one captive cell (similar, in some regards, to a mutual insurance company or a risk retention group). Multi-business captive insurance cells offer numerous advantages, particularly for small and medium-sized enterprises operating within the same industry or sharing common risk profiles. By joining forces, these businesses can leverage economies of scale, spreading the costs of captive establishment and maintenance across multiple participants. Moreover, a captive cell allows for risk sharing, providing each participant with access to a broader risk pool, increased risk diversification, and enhanced stability. This solution promotes collaboration, facilitates industry-specific knowledge exchange, and ultimately empowers similar businesses to confidently navigate their risk landscape.
What’s the catch? Setting up and managing a captive requires careful planning, risk assessment, and compliance with relevant regulations, necessitating professional guidance from experts in the field – which is the primary reason this alternative insurance solution has only existed for massive corporations to date. As the business landscape continues to evolve, captive insurance offers a compelling alternative that empowers companies to create better products and generate insurance returns.
Authentic’s goal is democratizing this complex world of captive insurance by providing a turnkey platform for distribution partners, making the setup and maintenance process significantly easier. With our end-to-end modern insurance stack, Authentic eliminates the cost and complexity barriers, enabling partners to seamlessly integrate insurance offerings into their existing channels without requiring insurance or engineering resources. Backed by industry experts and investors, our captive-in-a-box approach sidesteps distribution challenges and opens up new possibilities for businesses across various industries to efficiently manage insurance. With an initial focus on food & beverage, salon & spa, retail, fitness, and professional services industries, Authentic is poised to bring long-awaited innovation to the captive insurance space, offering unparalleled benefits for all stakeholders in the value chain.
Want to learn more? Feel free to get in touch by emailing support@authenticins.com