831b Captives are insurance companies owned by small to medium sized businesses with annual revenues of $1,000,000 to $250,000,000 to insure their own risk while enjoying the benefits of owning an insurance company. Benefits of captive insurance include:
1. The ability to design policy terms and coverage to the specific needs of its owner and insure otherwise uninsurable risk.
2. Reduced reliance on the standard commercial insurance market as well as excess and surplus lines insurance market.
3. The ability to cover commercial insurance policy exclusions.
4. Retention of insurance company underwriting profits and investment income.
5. The ability to structure risk retention according to the captive owner’s needs.
6. Potentially covering risk in a tax efficient manner.
Our expert captive management team has decades of combined captive experience. Thus, our captive owners confidently enjoy lower risk, creating a profit center and potential tax benefits.
831B Captives Frequently Asked Questions
While it is true that 12 new audit teams were recently created, these teams are not necessarily devoted to auditing captives. When captives are created for the right reason and managed properly, the likelihood of an unfavorable captive audit is quite low.
Captives are licensed property and casualty insurance companies and not the same as self-insurance. While self-insurance could potentially cover certain risk, it lacks tax efficiency and is easily depleted. Instead captives can turn risk into profit as whether a business while having protection for risk that exists whether a business owner buys insurance or not the risk is still there.
The most common insurance exclusions in commercial insurance policies relate to regulatory changes, regulatory audits and reputation expense. It is hard to know what your agent meant when they said there were no significant exclusions in your policies since all insurance policies have exclusions. Captives have far fewer exclusions than traditional business policies, resulting in broader captive coverages.
There are risks every business owner faces, whether insured or not, the risk remains. Captives offer the owner the opportunity to buy insurance that is not available anywhere else in the commercial insurance market as well as create a profit center.
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831B Captive insurance company owners typically have two choices to manage their insurance company. The first way is a “do it yourself” solution. This is where a Captive owner creates their own team to manage their captive. For most Captive owners, this task is easier said than done. While it might be tempting to use any Attorney and CPA to manage a captive, the consequences are too great. It is necessary to find professionals who are knowledgeable about Captives, not an easy task and it is possible these professionals are so busy, they have no room to add new clients. The second way to manage an insurance company is by hiring a Captive Manager.