As your fleet grows, controlling insurance costs while ensuring comprehensive coverage is critical.
But the cost of insurance is often based on the pool of other companies you are compared to, and traditional insurance often compares the riskiest of these companies with each other.
Why? Because the safest and largest companies self-insure.
So, how does a medium or large fleet get into a pool of the safest companies and lower their own premiums? It’s called captive group insurance.
Captive group insurance is a strategic solution empowering fleet operators to take control of their insurance programs, optimize costs, and enhance risk management.
This ultimate guide dives into everything you need to know about captive group insurance for fleets, helping you determine if it’s the right fit for your organization, and when.
Table of Contents
- What is a Captive?
- Why Do Companies Join Captives?
- Other Benefits of a Group Captive
- Why Are Captive Costs Lower?
- Considerations and Challenges of Captives
- Determining if Your Company is a Good Fit
- Selecting an Insurance Broker for a Group Captive
- Application Process
What is a Captive?
Captive insurance represents a paradigm shift from being passive consumers to active owners of your insurance program.
Let’s start with the basics.
A captive is a closely held insurance company, operating similarly to traditional insurance companies, but is owned by its members and designed to provide insurance coverage tailored to the group’s specific needs.
Unlike traditional insurance providers, captives aim to offer insurance at cost, with any underwriting profit returned to member companies through dividends. That sounds nice!
Typically, captive programs encompass coverages such as:
- Automobile Liability
- General Liability
- Workers’ Compensation
Risk sharing is fundamental to captive insurance, ensuring that no single member bears the entire burden of large claims.
This structure balances risk across the group, providing stability and protecting individual members from catastrophic financial exposures while leading to economies of scale and more favorable terms.
Why Do Companies Join Captives?
Companies are increasingly frustrated with the traditional insurance landscape, particularly regarding:
- Lack of Control
- Unfair Premiums
- Limited Rewards
- High Costs
By joining a captive, companies seek to establish a more equitable, transparent, and cost-effective insurance program that aligns with their specific risk profiles and operational priorities.
Group captives address these challenges by transforming member companies into co-owners of the insurance entity.
Key advantages include:
- Ownership and Control: Direct influence over claims handling, coverage design, and risk management strategies.
- Control Over Claims Handling: Members have a say in selecting claims adjusters, ensuring that claims are managed in their best interest.
- Risk Control Allocation: A portion of premiums is allocated for safety initiatives, such as jobsite inspections and employee training, directly impacting organizational safety.
- Collaborative Learning: Regular risk control workshops and board meetings facilitate the sharing of best practices and enhance managerial leadership.
- Premium Structuring: Premiums are based on each member’s five-year claim experience, eliminating the influence of broader industry trends or underwriter opinions.
- Profit Potential: Surplus funds and investment income can become profit centers, enhancing overall financial performance.
- Customized Coverage: Tailor insurance policies to address the specific risks associated with trucking, such as cargo loss, liability, equipment breakdown, and driver-related incidents. Flexibility to adjust coverage terms as the industry or individual company needs evolve.
By owning the insurance company, fleet operators can transform insurance from a cost center into a strategic asset.
Other Benefits of a Group Captive
This structure ensures that premiums are fair, directly tied to actual loss experiences, and incentivizes continuous improvement in safety and risk management.
Joining a group captive offers a multitude of advantages, including:
- Exceptional Underwriters: Captives are underwritten by A+ rated insurance carriers, ensuring high standards of underwriting and risk management.
- Insulation from Market Volatility: By unbundling administration, claims, loss control, and reinsurance, captives isolate and manage costs effectively, protecting members from cyclical insurance market fluctuations.
- Strengthened Safety Culture: Premiums based on loss history incentivize proactive injury and accident prevention, fostering a culture of safety and continuous improvement within member organizations.
- Risk Control Assessments: Members receive tailored loss control and risk management programs based on comprehensive Root Cause Analysis (RCA), ensuring targeted and effective risk mitigation strategies.
- Full View of Program Costs: Complete transparency of all program costs, including policy issuance, reinsurance, loss control services, and broker fees, allows members to manage and optimize their insurance expenditures effectively.
- Confidentiality: All captive business is conducted through confidential member numbers, safeguarding sensitive information and maintaining privacy.
- Equality Among Members: Every member has equal ownership and voting power, regardless of company size, premium amounts, or other metrics, fostering a democratic and fair governance structure.
- No Restrictive Clauses: Members can exit the captive at any time without restrictive handcuff clauses, providing flexibility and autonomy.
- No Exploratory Costs: Exploring the benefits of joining a group captive incurs no costs, lowering barriers to entry and facilitating informed decision-making.
Why Are Captive Costs Lower?
While there is an upfront investment to join a captive, the long-term cost savings are often substantial for members. Here’s why:
- Lower Initial Premiums: By around 25%-30% compared to traditional insurance.
- Return of Unused Premiums: Any unused premiums are returned to members, maximizing cost efficiency.
- Improved Safety Culture: Captive members tend to adopt stronger safety practices, which lead to fewer claims and lower overall costs.
- Transparent Cost Structure: Costs for claims handling, reinsurance, and policy servicing are negotiated annually, eliminating hidden fees.
- Proactive Claims Management: Efficient claims handling keeps individual claim costs down.
- Investment Income: Premiums set aside for claims generate investment income, providing an extra financial benefit.
- Reduced Overhead Costs: Streamlined operations result in lower administrative expenses.
These factors combine to create a more cost-effective and financially sustainable insurance solution for fleet operators.
Considerations and Challenges of Captives
While captives sound amazing, let’s take a quick look at why companies do not enter a captive and their potential challenges.
- Initial Setup Costs: Establishing a captive insurance company requires significant upfront capital and administrative investment. This is why we mention the premium threshold your fleet is currently paying as a comparison to being at a right fit for captives.
- Regulatory Compliance: Captive insurers must adhere to insurance regulations, which can vary widely by region. Ongoing compliance requires expertise and resources to manage effectively.
- Risk Exposure: While captives can provide tailored coverage, they also assume the risk that traditional insurers would typically bear. Proper risk assessment and management are crucial to prevent potential financial strain on the captive.
- Expertise Requirement: Operating a captive insurance company requires specialized knowledge in insurance, finance, and regulatory matters. Member companies may need to hire or consult with experts to manage the captive effectively. This is why we recommend working with an experienced captive agency that works alongside regulatory compliance experts in transportation, like CNS.
Determining if Your Company is a Good Fit
Not every company is suited for a captive insurance model. In fact, you basically need to create a captive resume, and the group members get to vet your company to see if you fit for them.
Often, we may recommend that you are not ready and need to clean up certain safety processes before trying to join. This is where Compliance Navigation Specialists comes in to help.
Group captives seek to include best-in-class companies exhibiting the following characteristics:
- Entrepreneurial Leadership: Decision-makers with a proactive, innovative approach.
- Have Significant and Predictable Risks: Companies with a stable risk profile can better predict and manage their insurance needs through a captive.
- Strong Safety Culture: Robust safety culture supported by dedicated management.
- Financial Stability: Solid financial health to support initial and ongoing captive operations.
- Positive Loss History: Consistently paying more in premiums than claiming losses.
- Premium Levels: Current insurance premiums for key coverages (Workers’ Compensation, General Liability, Automobile) exceeding $150,000 annually, although some programs accept as low as $100,000.
If your company excels in these areas, a captive insurance program could offer substantial benefits, including lower premiums and greater control over insurance operations.
Selecting an Insurance Broker for a Group Captive
Choosing the right insurance broker is critical to the success of your captive insurance program. Here is what you want from your captive agent:
- Experience with Group Captives: Not all captives agencies are created equal. You want to work with one that has a track record of advising and advocating for captive members.
- Comprehensive Program Access: There are many pools to join, but which one is the right fit for you? The right captive agency can connect members with diverse captive programs to find the best fit.
- Full-Service Support: You will need assistance throughout the entire application process, including risk control assessments, proposal submissions, and onboarding. Make sure your captive agent can help you through this process.
At CNS Insurance, we work alongside a captive focused agency that has over 20 years of experience in captive group insurance. Together we will assess if your company is a good fit for one of the groups and help you walk through the application process.
Captive Application Process
Applying to join a group captive involves several steps, each requiring detailed information and careful preparation.
- Provide Current Insurance Policies: Submit complete copies of all existing insurance policies, including Workers’ Compensation, General Liability, Auto Liability, and others. This allows brokers and captive managers to evaluate current coverage, identify unique terms, and align captive offerings with existing exposures.
- Submit Loss Runs: Provide five years of loss runs for all applicable insurance lines. Official loss run documents from your carrier are required for accurate proposals, though internal loss history data can initiate the process. This helps assess past claims and predict future risks.
- Detail Premium & Exposure History: Present premiums and exposures for the past five years across all relevant coverage lines. Exposure metrics may include:
- Vehicle counts = Auto Liability and Physical Damage
- Sales figures = General Liability
- Payroll by class code = Workers’ Compensation
- Provide Financial Statements: Submit the most recent audited or reviewed balance sheet and income statement. This verifies your company’s financial health and ensures sufficient liquidity to meet captive obligations.
- Submit Vehicle & Driver List: For companies including auto coverage, provide a comprehensive list of all fleet vehicles and drivers. This ensures accurate reflection of current exposures.
Take the first step towards captive group insurance today.
If you have any questions or concerns, please call us at 800.724.5523 or email info@cnsinsures.com.
