The standard insurance market is full of frustration. There’s constant disdain towards insurance renewals with ever changing coverage, lack of availability, pricing fluctuations and the ultimate annoyance — premiums that are largely pocketed as profit for the insurance carrier.
If we take a minute to think about the standard market, rising premium costs can be attributed to several factors.
First, as you may have experienced, one catastrophic claim can significantly impact your premium payments for years to come, regardless of your previous loss experience.
Two, in the standard market the safest companies with low risk are supplementing the poorer performers. Their claims are ultimately driving your premium costs.
Third, peaks and valleys in the economy affect the profitability of the insurance carriers. So in a hard market, how do they hit their profit margins? You guessed it, premiums will increase.
And finally for all industries, but especially those in the transportation industry, more distracted drivers on the roads today are increasing the commercial auto combined ratio.
The picture is pretty bleak. And for you, the decision maker, seeking an alternative to this standard market generally comes down to one thing: you want more control over your insurance spend.
But what’s the alternative? Well, large companies with the capital and risk wherewithal are able to find an alternative in a self-insured or high-deductible program.
For middle market companies, the alternative is the group captive.
A group captive allows you to partner with other like-minded, best-in-class companies to retain risk and profit off your positive loss performance.
So let’s talk about how the group captive frees you from the frustration and uncertainty of the standard market.
Like standard market insurance, you’ll still pay an annual premium. But unlike the standard market, when you’re part of a group captive, you are in control of what that premium amount will be AND to a large extent, how it is spent.
Allow me to explain that for a second. The majority of your premium will go to your loss fund, with a portion going to captive operating costs, including reinsurance, claims handling, and other administrative services.
Your loss fund, and consequently, your premium needed to fund it, is actuarially calculated. That’s right, your company’s own historical performance will determine what’s needed to cover the more predictable losses in any given year. The benefit here? These losses are also seen as largely controllable through continuously-improved safety programs and effective claims management.
The risk protection power of the captive really comes into play when severity losses happen — because we all know, some things outside of our control just happen. When that loss exceeds the captive retention or your claims deplete your loss fund, risk is transferred through reinsurance protection or group risk sharing.
To review, you control your premium spend based on your own performance.
You control the dollars spent on claims through an effective safety culture and proper claims management.
And because you are an owner of your own insurance company, you join a group of best-in-class companies who are in control of making decisions that are in the best interest of each member.
Then finally, the ultimate win — and biggest differentiator from the standard market — is the potential for premiums to be returned. The captive retention model allows you to build equity and earn dividends off your own performance.
To put this piece into perspective, since the creation of the first Cottingham & Butler captive in 1993, members have received more than $150 million in dividends — and counting.
We all know insurance is a necessary aspect of running a successful business. But that doesn’t mean you need to play the standard market game. Take control over your insurance and explore a group captive.
WANT TO LEARN MORE?
Please fill out the below form and a Cottingham & Butler representative will be in touch with you.