It is a fact that has been proven time and time again: forming captive insurance companies can serve as a great alternative risk management and planning strategy. But why is captive insurance growth among midmarket companies a hot topic now? Why have captives become a point of contention despite the changes in captive legislation?
What Are Captive Insurance Companies?
Well by definition, captives are insurance companies that have been specifically formed to insure the risks of an affiliated business. This means, there is great control over coverages and insurance claims than what can be found in the commercial market.
For decades, large Fortune 1000 companies were given the latitude by government authority and regulatory guidelines to utilize alternative risk financing and captive planning. But in the wake of the 2008 economic crisis, midmarket companies began to seek out strategies that could protect their financial and operational integrity. Captives, under section 831(b) of the tax code were a clear alternative to other, less beneficial options. Captive insurance growth for the middle market began to surge across the U.S. and around the globe—this growth continues today.
Midmarket companies are realizing the benefits of forming their own captive insurance companies and seeing first-hand that alternative risk planning has the propensity to keep supply chains, operations, financials, and partnerships intact.
In the infographic below, we’ve broken down the major reasons why there has been tremendous growth in the adoption of captive arrangements. See how businesses operating in high risk industries such as construction, manufacturing, oil & gas, transportation, and healthcare have leveraged captives to promote greater efficiencies while funding unexpected losses.