Cell Captive Insurance: A Vehicle for Flexibility, Diversity, and Economics

Large multinationals are increasingly creating their own cell captives as part of their enterprise risk management strategy.  Cell captive insurance has been gaining popularity to finance the risks in business. What are the things you should know about cell captive insurance to determine if it is right for your business?   […]

Cell Captive Insurance:  A Vehicle for Flexibility, Diversity, and Economics

Large multinationals are increasingly creating their own cell captives as part of their enterprise risk management strategy.  Cell captive insurance has been gaining popularity to finance the risks in business.

What are the things you should know about cell captive insurance to determine if it is right for your business?  

What is Captive Insurance?

Captive insurance involves providing insurance to a parent company and its affiliates from an established subsidiary corporation.  It is specifically formed to cover risks of the affiliated or parent business.

The insurance is governed by a captive insurance company that represents an option for many corporations and groups who underwrite their own insurance to take financial control and manage risks.  They do this instead of the traditional method of paying third-party insurers.

There are many ways of classifying captives depending on the owner and the risks that they insure.  Some forms of captives include:

  • Single-owner, Single parent, or Pure captive

The scenario is when a parent corporation owns both an operating company and a captive insurance company as sister subsidiaries.  The captive insures the risks of the operating company.

  • Association captive 

This form of cell captive insurance is an alternative arrangement where a captive may be owned by a number of unrelated companies in the same industry.  A specific industry or trade group has its unique set of risk insured, sponsored, or owned by an association.

Cell captive insurance offers a way for smaller companies to share captives without larger expenses of an autonomous large captive.  The entities are divided up into “cells”.

The company typically insures itself by owning a class of shares to form a cell in a special purpose insurance company.  Each cell is required to be individually sound and solvent, hence, it is ring-fenced to prevent cross-subsidization.

Benefits of Cell Captive Insurance

Cell captive insurance can give you the best deal for your business that you haven’t considered yet because you underwrite yourself by setting up a “cell” of your own.  Here are other ways it can benefit your business:

  1.  You set your own premiums

Insurance premiums can be especially high when your business is involved in particularly risky operations.  It will be good business for the insurance firm but it poses a risk for them as well.  With your own cell captive insurance, you have reduced risk management budgeting since you set your own premiums.

  1.  You can customize the policy to meet your business needs

With cell captive insurance, you have full control over your policy and you can tailor it to meet the needs of your business.  This is especially true because you get to run your own insurance firm to insure your business.  

This benefit is helpful for businesses that have aspects being questioned by other insurers.  When workers liability costs thousands, your business can save through a cell captive insurance scheme.

  1.  You decide and reduce costs

You can keep costs down for your business when you are able to charge your own firm for insurance premiums.  You can put together a cell captive insurance that will work for you especially when you have to pay a lot for premiums in your business.  For example, a fleet business that pays a lot for car premiums can save thousands every year with a cell captive insurance strategy.

  1.  You gain access to reinsurance markets

Your premium is vastly lowered because you gain access to re-insurance markets with cell captive insurance.  You minimise your expenditures on monthly insurance premiums and you get more opportunities to get on with business transferring budgets for premiums on other aspects that will increase your productivity.

  1.  Unlimited options for insurance

When you can’t get insurance elsewhere because of specific requirements you have to meet or accomplish, a cell captive insurance where you set up your own firm to insure your business, can be the best deal—going from no insurance to having unlimited options.

Reap the Benefits and Manage Your Risks

Take financial control and manage your business risks with cell captive insurance.  It is one way you can earn financial rewards while you get better control of your insurance program, giving you the flexibility, diversity, and the economics to meet present and future challenges in your business.

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