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From time to time, we hear of tools that may benefit us and our business. Too often, we either don’t have time to fully investigate their application, don’t understand their use or rely on our uninformed business friends and relatives for input. Such an opportunity may exist for you and your business in taking advantage of creating a captive insurance company solely for the purpose to mitigate risks.
Are You Comprehensively and Adequately Insured?
A captive insurance company is a Property and Casualty insurance company that is formed to cover risks of its parent company and related entities. Captive insurance is a risk management tool which allows businesses to more effectively and efficiently manage corporate risk. Captives often are set up to insure enterprise risk, risk for which commercial insurance is not available or may be too expensive. It is a means to balance costs of insurance against the risk of the loss of business income.
Enterprise Risk Examples That May Result in Loss of Business Income:
• Breach/Release of Data
• Business Interruption
• Contractual Liability
• Deductible Reimbursement
• Defense Cost Reimbursement
• Mechanical Breakdown
• Difference in Conditions
• Trade Credit Loss
• Loss of Key Employee
• Loss of Licensure
• Legislative and Regulatory Changes
• Reputational Risk
• Suppliers/Supply Chain Interruption
A captive insurance company is not an estate planning tool. However, the establishment of a captive insurance company can complement your estate and financial plan. Always consult with knowledgeable legal and tax advisors when considering ownership arrangements for your captive insurance company, to assure that the most appropriate structure is utilized to fit varying planning objectives.
As you can appreciate, this tool is not made for everyone. The company that generates at least $5 million in recurring gross revenue and $1 million in net profit are best suited to take advantage of this risk management tool.
Oxford Risk Management Group has extensive experience with all kinds of captives, including Stand-Alone, Protected Cell, Series and Group. While they can be similar in design and effectiveness, there are several distinct differences. Each structure will vary based off the individual business goals of each operating company. Contact Jeffrey J. Patti, Jr. (410-472-6490) at Oxford Risk Management Group to discuss how this tool may be a benefit for you and your company.
Oxford Risk Management Group
Richard A. Miles II
CAPSTONE Business Advisors, LLC