What Doesn’t Belong in Your Small Captive

Last week, we attended (via Webinar) a presentation at the CICA International Conference, held in Arizona, entitled “Best Captive Practices for 831(b)s- Do Them Right or Don’t Do Them At All.

This presentation looked at small captives from the perspective of a captive manager, an actuary, an attorney, and a captive owner.  It was an interesting presentation covering many aspects of captive insurance companies and their structure including best practice guidelines.  While there were many topics worth sharing, one of the initial items discussed was what NOT to place in your small captive (may be appropriate in a larger captive, or a group captive):

  • Primary, working layers of easily accessible commercial coverages like general liability and auto liability;
  • High frequency coverages like workers compensation, auto physical damage; and
  • Long tail or primary coverages seen as inherently “risky” like medical malpractice.

What you are likely to want to place in your small captive are more “traditional,” low frequency risks that potentially have a high severity:

  • Weather related risks: flood, wind;
  • Pollution liability and clean-up; and
  • Excess or Wrap/DIC policies.

You’ll also want to consider including coverage for some more non-traditional risks (but be careful that these are not just “business risks”) including coverage that is not available at all in the traditional insurance market and currently self-insured.

Want to learn more?  Please give us a call, or send us a comment or question!

2 thoughts on “What Doesn’t Belong in Your Small Captive

    • Depending on the exposure, auto physical damage claims are often high frequency, low severity claims. The captive structure may be better suited to providing coverage for low frequency, potentially high severity claims.

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