The Alternative Insurance Marketplace
Contributed by Kevin Casey, CPA, CPCU, CRIS
For many years, large businesses have had access to various cost-reduction tools for their property and casualty insurance needs (e. g., self-insurance, captive insurance, etc.). By focusing on safety in their operations, they have been able to control and reduce their losses, take more risk than the standard market allows and then reap the long-term rewards of lower, stable insurance costs.
Smaller business owners have also, in recent years, been able to access these tools by grouping together with like-minded employers through trade associations and other affinity groups. Wide-spread acceptance of these Group Captives has been hindered by three significant hurdles:
- Initial capital and collateral requirements exceeding $100,000
- Sharing risk and reward with others
- Minimum annual premium threshold of $250,000
Recently, a new vehicle has emerged that lowers these hurdles. It is a program sponsored and financed by an “A” rated (A. M. Best Company), California-licensed insurance carrier with three key features:
- Upfront fixed capital investment of just $10,000
- Isolation of experience (risk/reward) for each business owner
- $100,000 minimum annual premium to be considered for participation
If a business owner believes that the business insurance industry gets the lion’s share of the reward for the company’s investment in a robust safety program; if taking a little more risk in return for a greater probable reward is intriguing; and if an owner wants to control future insurance costs, then this might be something to consider. Business owners now have a way to benefit from their investment in safety, which traditionally has only accrued to the insurance carrier.