Charles Spinelli Talks About Why Big Business Consider Forming Captive Insurance

The popularity of captive insurance is growing exponentially in big corporate businesses as a form of ‘self-insurance’. Besides, tax benefits, captive insurance arrives with multiple advantages while reducing the cost borne by a company towards its insurance. According to Charles Spinelli, what makes captive insurance so tempting is that even after paying the overhead cost for operating a standalone insurer it turns out to be a worthwhile approach when properly administered. For those who are wondering about captive insurance, how it works, and how it can be beneficial for their business, continue reading

What is Captive Insurance?

Precisely, captive insurance is a form of a wholly-owned subsidiary of its parent company that is not in the insurance business.  Thereby, it insures the huge insurance policies for a non-insurance company. when it comes to HR planning, it has no one-size-fits-all strategy. The HR manager needs to customize and devise their business-specific strategic procedures to reach their goal efficiently and cost-consciously

Noteworthy, a captive does not insure or sell insurance plans to any other business except their parent company. Many big tech businesses these days consider forming captive insurance to cut their cost of risk as they face traditional insurance companies hesitant to cover their huge business risk. Captive insurance can even take coverage of international risks, whereas general insurers fail.

How Forming a Captive Insurance Can Be Beneficial? 

The most common advantages of captive insurance include retaining insurance profits within the group, better control on managing claim settlements, easy access to international reinsurance markets, increased cash flow, less reliance on traditional insurers, and positive tax advantage over traditional self-insurance. However, according to Charles Spinelli, its benefits may go beyond these common benefits when effectively managed and utilized.

Firstly, commercial insurance companies are often found fearful to insure emerging and new risks that they are not familiar with. Forming captive insurance happens to be beneficial to meet the coverage of those risks that are hard to insure by commercial insurance groups.  For example coverage of major cyber risks, coverage of regulatory changes, insurance of telemedicine and telehealth, and so on.  It should undergo a comprehensive study of the business’s human resources in terms of their qualifications, skills, experience, tenure, age, performance, positions, compensation, benefits, etc.

Secondly, having ‘self-insurance’ through captive insurance comes in handy for their parent companies to free up their funds involved, which they would otherwise exhaust on traditional insurance coverage. They can utilize such investment toward other risk management planning, strengthening the great benefits of the captive insurance business and other business purposes.

Finally, captive insurance comes with multiple tax benefits for big enterprises. For instance, the tax deductions toward premiums that are paid to the self-insurance company are enjoyed by the parent company. In addition, owners of the captive insurance company or the parent company can get the essence of tax advantage as they have access to the affordable global reinsurance market.

Which Companies Use Captive Insurance? 

From the above discussion, it is clearly understood that captive insurance is specifically designed for companies that fulfill the criteria as stated below:

  • Company management wants the protection of its huge assets
  • For companies that face surplus risks to enjoy more profitability
  • Businesses that like to lessen their dependence on commercial insurance
  • Big corporate entities that want a high volume of cash flow at all times
  • Owners of businesses interested in counting considerable tax deductions
  • Businesses that require customizing their insurance plans

In a nutshell, the benefits of founding a captive insurance company are significant and numerous. However, it is equally important to understand that while many big enterprises reap the remarkable benefits of the insurance model, considering a cost-benefit analysis makes sense before making a final decision.

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