By Todd Rhoads, CPCU, ARM, Vice President and Central Regional Manager
The hardened property and casualty insurance market is presenting challenges for manufacturing companies.
Rising premiums, increased deductibles, and stricter insurance contract terms have made it difficult for manufacturers to secure the coverage they need without significantly impacting their bottom line.
However, alternative solutions like P&C captives can help manufacturers combat these conditions.
Financial and operational benefits of captives for manufacturers include:
- Lower insurance costs
- Tax advantages
- Underwriting profits
- Greater control of coverage
For a captive to be right for a manufacturer, it’s important the manufacturer be financially strong, have robust safety programs, and above average historical loss experience. Manufacturers should also have the capacity and desire to take greater control over their insurance program and be more involved in claims handling.
For manufacturers with the right qualifications, captives can offer many benefits for years to come.
Here are the top four potential benefits of joining a captive:
- Stabilized long-term insurance costs: There are key structural differences between traditional insurance coverage and joining a captive. Under a captive framework, captive members are insulated from fluctuations in the general insurance market. As a result, they typically receive more consistent prices and coverage terms year after year. This pricing predictability and stability also often leads to lower overall costs over time.
- Potential for dividends: When claims are low, captives have the potential to produce underwriting profits. When this happens, all profits are returned to captive members as opposed to being kept by the insurance carrier. Additionally, premium and loss reserves also can earn interest, and potential tax advantages exist for certain captives depending on where it is domiciled.
- Flexibility to handle coverage outside of the captive: Many captives provide members with the flexibility to handle certain coverages outside of the traditional captive model. Normally, these coverages include workers’ compensation, general liability, and auto policies. Some programs offer property insurance for captive members, eliminating the need to purchase stand-alone coverage. Umbrella programs can also be built in to cover the specific needs of captive members.
- Information sharing and partnerships with similar companies by industry: By joining a group of companies with similar risk profiles and exposures, captive members can benefit from more efficient underwriting. With aligned incentives, these companies can also share best-in-class risk management practices to further reduce risk and limit claims. Attending captive annual meetings also offers great networking opportunities.
Making the switch
Captives have countless potential benefits for the right manufacturing companies. While many manufacturers see this transition as an arduous task, in reality, making the switch merely requires strategic upfront planning and the support of an experienced insurance broker. With the right help, making the transition is easier than you might think.
Thinking of making the switch? Reach out to us today to get the process rolling.