Captive Insurance For Small And Mid-Sized Businesses

Captives have historically been associated with Fortune 500-sized companies, but the landscape has evolved and captives are now more accessible to businesses of all sizes. 

SMEs do not typically own “pure” captives, but instead participate in group or cell captive insurance programs. This can bring significant advantages in that, by pooling risks with other businesses, the SME can achieve greater risk diversification, which can lead to more stable insurance costs over time.

We've found that businesses that are a good fit and succeed in a captive share some characteristics.

Many successful captive members have an entrepreneurial mindset—they’re motivated, forward-thinking, assertive, and innovative. They have the ownership mindset needed to take ownership of their risk, and they embrace the kind of risk-reward trade-off that comes with captive ownership.

In addition to having an entrepreneurial mindset, successful captive owners have enjoyed long-term financial strength and corporate stability. Group captive members commonly pay annual casualty premiums greater than $350,000 (minimum $250,000), many between $650,000 and $2 million, with some paying as high as $5 million or more. Also, their management teams are committed to safety, they have solid safety and risk management programs in place, and their loss histories are better than average for their respective industries. 

Before making the decision to enter a captive, most business owners want to know whether and how they’ll be able to get out of it if things don’t go as expected. In simple terms, the answer is yes. You can exit a captive.

That being said, captive ownership is a long-term business strategy and exiting should be given the same careful consideration as entering.

If the captive outlives its usefulness (for example, the underlying business is sold or becomes insolvent), the business owner may want to exit the captive.  

If a business owner decides to exit a captive, they leave immediately. There is no obligation to stay or to continue contributing for any minimum period. However, exiting involves more than just ceasing to fund the captive or otherwise do business with it. It calls for careful thought and planning, and consultation with knowledgeable professionals.
One key thing to understand is that even though the business owner can leave immediately, the collateral they have invested stays in the captive until all policy years close–typically for five-to-seven years after the decision to exit.

The funds that were used to purchase the share are returned once all policy years are closed and any underwriting profit is distributed.

Is management entrepreneurial? Are they willing to take a chance on themselves? If not, you're likely not a good fit for a captive.

Do you outperform your peers as it relates to safety and risk management? Do you consider safety and risk paramount to your organization? If not, you're likely not a good fit for a captive.

Do you believe that risk management and employee training can have a direct impact on your claims experience? If not, you're not a good fit for a captive.