Starting a Captive
Many Fortune 500 companies have set up captives to finance their uninsurable risk, such as product liability, extended warranties, cyber threats and patent or process issues. Captives are completely owned by the companies they insure. Corporations with risks that are uninsurable or difficult to insure can set up captive insurance companies.
Determine Captive Type
Captives can be owned by and provide insurance to a single company. They may also be owned by and insure a group of companies or the members of an association. Finally, a captive may be owned by companies or individuals who have little or no association with the insureds.
Large companies typically start captives, while smaller companies or individual professionals may start group or association captives or seek insurance from a captive they do not own, whether this is a rent-a-captive or agency captive.
Hire a Captive Manager
Each captive needs an effective manager to form, develop and manage the captive. The captive manager will be responsible for the accounting, claims management, regulatory, investment, underwriting, tax and other processes. The manager may also conduct the feasibility study and select the domicile.
Complete a Feasibility Study
Parent companies must create a business plan-type document that discusses the captive’s perspective financials, purpose, loss assumptions, reinsurance plan and capital requirements. This study enables the company to consider all the risks and requirements involved in creating a captive. This in-depth study will give the company the information it needs to make a well-informed decision and prepare for the financial investments required to start and run the captive.
Find a Domicile
A domicile is the location in which the captive will be licensed. Select a region with a favorable regulatory environment, political stability and support services. The country or state should also offer cost advantages.
Your domicile will require an application and proof that you have enough capital to operate as a captive.
Starting a captive is a challenging process, so consider consulting with a captive professional.
