Alternatives to Insurance

Captives

A captive is a parent-owned subsidiary that acts as an insurance company, which covers the risks of its parent organization(s). Generally speaking, it is a formalized, regulated, and disciplined method of self-insurance that better highlights the need to control losses and associated costs.

Insurance captives can take many different forms, depending primarily on participant objectives and financial restrictions. Some of the more frequently used arrangements include single parent captives, where ownership resides within one organization, rent-a-captive in which members join a previously established captive, and segregated portfolio companies, where members essentially purchase a “cell” or “stake” in the captive and are responsible only for their own activities.

Even though the regulatory structure may vary from one captive to the next, the following primary components remain consistent across the board:

1. Financial – premiums, capital, and investment income
2. Operational – policy issuance, premium collection, claims management, operating expenses and dividend allocation
3. People – board of directors, captive officers, management company and service providers

The most critical aspect in developing a captive insurance company is determining the overall quality of the parent organization. This entity must have financial strength, a senior management staff fully committed to a proactive risk management agenda, a long-term view of risk finance, a predictable loss experience, and a vested interest in reducing loss.

With this is mind, Chivaroli & Associates has owned and operated its own healthcare segregated portfolio company, Kiera Assurance Company SPC, since 2001, which provides an immediate avenue for your organization to participate in a captive insurance company. If you are interested, we will discuss benefits and potential negative aspects of participating in a cell and conduct a feasibility study. Alternatively, we can assist in the formation of other types of captives, such as a single parent, group, or Risk Retention Group.  No mater which option is selected, we will assist in selecting the appropriate service providers with which to contract and explain the costs associated with the overall arrangement.

Our in-house resources and established infrastructure will prove to be invaluable in making the transition to insuring your own losses.

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© 2006 Chivaroli & Associates Inc.