- The standard market incurs many overhead expenses not related to individual clients, it is inefficient, and the buyers have to pay for that inefficiency. Captive companies have a lower fixed cost (“expense ratio”).
- The standard market automatically retains investment income on what is essentially their policyholder’s money. Captive owners effectively hold their own loss funds and premiums on which they earn investment income.
- The standard market is subject to insurance cycles, alternating between artificially low and excessive premiums, because the standard insurance industry aims to stabilize costs. Captive owners fund their own predictable losses while reinsuring catastrophic exposures. Premiums can be stabilized through loss control.
- The standard market selects only those classes of risk that conform to its “standards”. Captive owners decide which risks are acceptable and evaluate prospective members.
- The standard market avoids providing individual services on a fee basis. Captive owners decide which services will be purchased, promoting cost effectiveness.
- The standard market will not provide a long-term deal to a corporation wherein the parties agree on the after-tax, after-investment cost to the insurer of providing its services, plus a reasonable profit. Captive owners negotiate fees in advance with the fronting insurance company for selected services and guide their own tax and investment programs.
- Greater control of a captive owner's insurance budget through premium stabilization. Reduction of insurance premiums through lower fixed-costs than a commercial insurance carrier.
- Loss control efforts directly result in premium savings since each Captive owner primarily funds for its own predictable losses while sharing fixed-costs.
- Greater coverage than available through the traditional insurance marketplace. Coverage can be tailored to the needs of Captive owners.
- Better control of each owner’s risk management destiny.
- A representative of each captive owner becomes a Director of the Company allowing for maximum input into insurance company operations. Owners have the ability to select service providers on an unbundled basis creating the opportunity for cost effective and efficient services.
- Greater control of claims adjudication. Owners have direct access to and notification from the person setting loss reserves, input into legal counsel, and the ability to designate claims that require special attention by the adjuster.
- Investment income (if earned) from each owner’s distinct loss fund and potential profits are generally allocated to that owner’s individual equity account.
- Security and protection through the utilization of an “A” rated policy-issuing company that is licensed in all states as well as the transfer of all catastrophic loss potentials to a “A+” rated reinsurance company.