Alternative risk options originated in the 1970s because of widespread issues about the maximum amount of insurance a company could buy. During this time, companies that were believed to pose financial risks began seeking other means of coverage. In the last 40 years, a number of alternative programs have been developed to assist risk-bearing business entities that are in need of protection. Of these, captive solutions offer some of the most superior approaches to business insurance coverage.
How do Captives Operate?
Essentially, a captive functions as an insurance company that provides risk-mitigation for its parent group. Captive solutions sometimes enable the reduction and stabilization of insurance rates, and also allow providers to regain investment income. There are multiple types of captive insurance companies and they each differ slightly from one another. They include:
- Single Parent Captives, which are companies that are established solely to cover the risks of parent groups.
- Association Captives, which are companies that are run by a trade for the advantage of its affiliates.
- Group Captives, which are companies that deliver mutual insurance needs to a group of businesses.
- Agency Captives, which are separately-owned companies that reinsure client risks.
- Rentable Captives, which offer the advantages of a captive to businesses that do not possess the proper funding to establish their own.
These distinctive captive solutions can provide a company with many promising options for addressing potential risks.