Is an Association Captive in Your Future?

Are you wondering about whether there are other options to handling your company’s insurance needs when costs seem to be going up at a faster rate than your business profits? If so, you might consider entering the “captivating” world of association captives, a generic term used to describe insurance companies that are typically formed by members of a trade association or professional group, two or more of which combine to own the insuring organization, for the express purpose of insuring a sister or parent organization. At times the association itself owns the insurance company.

Companies are often driven by costs

Large companies often are driven to form of these types of self-coverage options when they have experienced extremely high costs for covering their employees and their business. This private means of insuring gives them an opportunity to reap some savings as they write policies for their parent or sister organization. However, these companies can also present some risk as well, which may give you pause if you have been thinking about setting one up—namely, high start-up costs, regulations, and fluctuating market conditions.

To form one, you first need to find a location for the firm—which may be a bit involved, because these types of companies cannot be formed in every country or every state. There are certain regions that cater to them—for example, Bermuda, Panama and other countries in South America and the Caribbean are a frequent site for domicile of these companies.

There is a common misperception that regions outside the United States will have less stringent rules governing the companies that conduct business there, but this is not the case. Each region has its own regulations for these companies, and there are a variety of regulations that apply to setting up a banks or insurers in that country. In fact, people may be surprised to find that there is an insurance board in place in any jurisdiction that must approve any applications to establish association captives there. Critical to the application approval is a substantial amount of capital (in the millions of dollars, typically), as well as a board of directors that possesses the knowledge and experience to run such an organization.

Talk with your professional insurance agent if you believe your firm could benefit from forming a private self-coverage option. He or she can tell you more.