Captive Insurance benefits for mid-market companies discussed.
By Park Eddy
With more than 90% of Fortune 500 companies having a captive insurance company, it says a lot about the viability and value of captive insurance operations.*
What’s a ‘captive’? Prompted by the financial missteps of traditional insurers in the 1980s, which were compounded by enormous and unexpected liabilities related to asbestos exposure, Congress enacted the Tax Reform Act of 1986 (TRA 86), which included section 831(b); a measure specifically designed to encourage smaller companies to manage their own risk and provide their own insurance. The result was the formation of hundreds of captive insurance programs, also known as “ enterprise risk captives,” or sometimes called, “micro-captives.” These programs, formed to bring higher efficiency and more control to risk management, have gradually drawn the attention of thousands of mid-sized companies as an effective business tool to manage risk.
Unfortunately, too few organizations take advantage of this opportunity. If they even know about section 831(b) they may avoid the effort involved in setting up a program of their own due to uncertainty and doubt about how to do it and fear of making a mistake.
Fortunately, a mature market has grown up to support individual organizations in establishing and operating a micro-captive of their own, including Active Captive Management (ACM), established in 2005 to help companies in the design, development and implementation of alternative risk transfer solutions. In fact, there are now reportedly more than 5,000 captives currently being used by U.S. businesses.
Micro-captives provide a substantial range of benefits for middle market businesses – the same ones that larger corporations have leveraged for years. Under Section 831(b), insurance companies with under $1.2 million in premiums have a significant tax benefit. Middle market captives are also being used to insure or reinsure workers compensation, general liability and auto liability exposure. Others are using captives to reduce health insurance costs by 15-20%.
Yes, micro-captives can make a lot of sense. You owe it to yourself to find out more!
* Forbes.com, 1/28/13 (http://www.forbes.com/sites/bmoharrisbank/2013/01/28/why-companies-are-opting-for-captive-insurance-arrangements/)