Lower insurance costs, tax advantages, and greater control of coverage were some of the potential benefits of a captive insurance discussed at CSP’s 2024 Risk Management and Captive Insurance Forum this month in Schaumburg, Illinois.
In their presentation, Making Your Captive Work for You, Blair Garland, pictured above, captive practice leader at the Graham Co., and Executive Vice President and Chief Growth Officer Tom Morrin of Graham Co., walked c-store risk managers through the process of captive insurance, a form of self-insurance. The presenters from Graham Co., an insurance brokerage and consulting firm based in Philadelphia, described various scenarios on whether it is a good fit for those contemplating a “captive,” a wholly owned subsidiary insurer formed to provide risk mitigation services for its parent company.
During their presentation, they also noted that more organizations than ever before are using captives as a valuable risk management tool but also revealed that retailers need to decide if being their own insurer is right for them.
“Assessing whether a captive insurance program makes sense for your business’ unique risk vulnerabilities and strategic goals will require a wider conversation across your organization,” Garland told attendees.
When it comes to navigating the captive insurance process, Garland said it’s important to have expert help to determine and identify risks to be financed, including the “help of an insurance consultant.”
The presenters also discussed the benefits of a captive, including tax benefits. “To recognize the tax benefits available to captives, the captive must qualify as an insurance company for U.S. federal tax purposes and show existence of risk transfer and risk distribution among a sufficient number of insureds in the captive transaction,” according to the speakers’ slide presentation.
As of first-quarter 2024, Garland and Morrin said they have observed 26 consecutive quarters of increasing premiums, according to data from Graham Co.
They said the key drivers behind these higher premiums include ongoing severe weather events; commercial auto continued negative performance; social inflation leading to more frequent and more costly settlements and verdicts; and third-party litigation funding.
The presentation also touched on cell captives, which continues to grow globally, according to the speakers. A protected cell captive is used as a cost-effective risk financing vehicle.
According to Graham Co., the benefits include up to 30% lower operating costs compared to a single-parent captive, and it may also help achieve same financial advantage as a single-parent captive.
The presentation concluded with a sample timeline and process to form a captive, including the initial decision to proceed to submitting a business plan application to regulators.
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