With the cost of health insurance continuing to increase along with the uncertainty of programs like the Affordable Health Care Act, individuals and organizations are looking For alternative ways to make the most of the investments they have available. While there may be no solution to this, perhaps they haven’t looked at an industry which has been around since the 1980s that was created due to a similar health insurance situation in the 1970s. This is the world of the captive insurance industry.
Captive insurance works differently than its traditional cousin. Normally, when you present a check to a company for coverage, you are underwritten for a certain amount and don’t know where the money goes. In captive insurance, you still make an investment, but you have access to observe all the components of the premium as well as play a part in its pricing and how it’s delivered. In other words, you become an active partner and not a proxy.
If this seems like a good idea for your association or group of industries, you can do a few things to get started. First, you can go to an organization like CaptiveResources which has been around for several decades to help you out. If you want to start on your own, you need to understand the structure of your captive.
First, understand that creating the captive is an investment risk like normal insurance. That doesn’t mean success will be difficult. It just means you and those who join you in the captive will need to invest a large sum in order to reap the profit as well as pay premiums and cover any future losses. Second, you can’t simply start a captive with the promise of investment. The ability to pay must be fully demonstrated to the investors to secure not only payments but coverage.
Finally, if you run your own business and decide to start a captive, that business needs to be run separately. That means a financial manager or board of directors independent of the ones who normally work with you. Keeping these together would confuse investors and, potentially, result in financial losses across the board.
The best thing to do before making even a consideration is to do research and speak with those already in the industry. The more work you do, the better prepared you’ll be to start a captive to help everyone.