Captives for Manufacturing
Cutting edge solutions for complex needs.
Cutting edge solutions for complex needs.
A single parent captive, also known as a pure captive, is under the sole ownership, financing and control of a single parent company. It is specifically designed to provide insurance coverage for the parent company and its affiliates. For larger manufacturing businesses or companies with many affiliates, single parent captives offer the flexibility to consolidate a range of coverages under one umbrella while addressing both general and industry-specific risks.
A group captive insurance program is established when several businesses come together to create their own captive insurance company. Each business becomes a member-owner in the captive insurance company, enabling collaborative decision-making and the sharing of risks.
In both cases, a captive insurance company operates like a traditional mutually-owned insurance company with A-rated carriers that issue policies, process claims and follow applicable regulations.
There are many potential benefits to captive insurance for manufacturing companies, such as:
By retaining a portion of their insurance premiums and gaining more control over insurance coverages, manufacturing companies have the opportunity to cut down on insurance costs through captive insurance. Within manufacturing, this can be a significant advantage: due to the industry’s higher rates of worker injury and death, companies may be subjected to higher insurance premiums with standard policies. However, with captive insurance, your manufacturing company can leverage your individual loss records to potentially help your business secure lower premiums.
Manufacturing businesses can utilize captive insurance as a means to boost cash flow. By enabling companies to retain and invest their insurance premiums, captive insurance has the potential to create an additional source of income through the accumulation of capital and strategic investment of premium funds. This not only contributes to improved cash flow, but also generates investment returns on loss and unearned premium reserves – a benefit not available in traditional insurance models.
The provision of customized coverage that caters to the specific requirements and risk profiles of manufacturing companies is a major advantage of captive insurance. Traditional commercial insurance policies may come with standard coverage that may not be necessary for manufacturing businesses and may add unnecessary costs. Captive insurance can allow for both the removal of unnecessary standard coverage and the addition of coverage that specifically addresses the company’s requirements.
Captive insurance has the potential to improve financial efficiency by helping manufacturers retain funds within their financial ecosystem, facilitate risk retention and self-sufficient financial structures and take advantage of tax benefits. Manufacturing businesses can benefit from captive insurance through the full deductibility of premiums paid to the captive, as well as the fact that captives are not taxed on premium income. This potential for significant tax advantages can enhance the longevity and profitability of the captive insurance company.
As a captive insurance company matures and stockpiles more capital, the captive bolsters its ability to manage risk and shield itself from fluctuations in the commercial insurance market, allowing for more stable premium pricing. The stability that a captive insurance company can provide can offer manufacturing businesses a safeguard from the unpredictability and sudden premium increases often associated with traditional insurance.
Captive insurance can open the doors to reinsurance markets. By functioning as a primary insurer, a captive insurance company can procure reinsurance from the commercial reinsurance market and offload a portion of their risk to reinsurers to more effectively manage their risk and support their financial stability.
Another advantage of captive insurance is the control it offers over insurance claims. As the parent company of the captive insurance entity, your manufacturing company can have more control over and transparency during the claims process. With a captive program, your insurance experience is not solely in the hands of traditional insurance companies; it also lies with the company that understands its risks the best – the manufacturing company itself.
At Higginbotham, our deep industry knowledge allows us to provide customized coverage that aligns with the specific requirements and operational risks of manufacturing businesses. But, more than that, once we’ve established your group or single parent captive program, we offer year-round support, including:
A captive insurance program can incorporate a broad spectrum of insurance policies in the commercial insurance market, including:
With Higginbotham’s help, Zoeller Pump Company transitioned to a group captive insurance plan and optimized its risk management strategies. Learn how Higginbotham played a pivotal role in demystifying the concept of captives and setting up this innovative captive model for a business operating in the manufacturing industry.
As with any business venture, there may be challenges that come with the implementation of a captive insurance program, and our specialists keep these in mind when establishing and maintaining your organization’s captive. Some potential challenges in captive implementation include:
One major challenge with captive insurance is ensuring regulatory compliance. Companies must navigate licensing requirements, different regulatory environments and ensure compliance with tax laws. This process can be complex and often requires a deep understanding of the regulations governing both the manufacturing industry and the captive insurance landscape. At Higginbotham, we leverage our knowledge and experience in both areas to help you navigate the complexities of captive regulatory compliance.
Another challenge in implementing captive insurance is ensuring adequate financial support and effective financial management. A captive insurance program typically has higher start-up costs than a traditional insurance policy, making comprehensive financial planning crucial from the beginning. Our team offers year-round financial support that includes assistance with underwriting, renewal, investment income, member assessments and more.
Claims advocacy and loss control support are essential for ensuring the quality of service in a captive insurance program. However, these areas can be challenging due to regulatory requirements, potential disputes between the captive and the parent company and the need for precise insurance pricing and claims adjudication. That’s why, at Higginbotham, we offer comprehensive support for captive claims, including TPA claims renewal and analysis, quarterly reviews outside of TPA standard reviews and a dedicated claims unit.
At Higginbotham, we pride ourselves on delivering captive insurance solutions tailored to your manufacturing business. Our suite of services for manufacturing captives includes ongoing support and guidance in setting up and managing both single parent captives and group captives.
Talk to a member of our team today and discover how Higginbotham can be your partner in navigating the complex world of captive insurance.
