Captive Insurance for Hospitality Businesses

The hospitality industry plays an important role in the U.S. economy. In fact, 1 out of every 18 Americans works in one of several hospitality sectors, including food & beverage, travel & tourism, and accommodations. To foster continued growth and profitability, mid-market business owners working in hospitality must continue to maintain important business relationships, add value to the market, and take control of their risk management.

Mid-market hospitality businesses face risks such as the loss of a franchise relationship, the loss of a key reservation service, liability resulting from employment practices, and many others. If not properly insured, these risks can lead to high out-of-pocket costs in the case of a loss event, business interruption, and more.

Forming a captive insurance company can tackle these risks head-on and help business owners fill gaps in insurance coverage that commercial policies may leave behind. Other ancillary financial benefits may also be available. The animated video below explains.

Have questions? Call Capstone at 713.800.0550, or submit your information via the form. One of our experts will be in touch. We’ll discuss how we can help you or your client form a captive insurance company to insure the risks of your hospitality business.

According to data obtained by The International Trade Commission, accommodations, a sub-sector of the hospitality industry, account for $278 billion in annual revenue and more than 1.9 million U.S. jobs.

In the case of air travel, another sub-sector of hospitality, consumers spend approximately $265 billion annually. Air travel also supports 870,000 U.S. jobs.

Much of this revenue and job market opportunity is supported by online travel agencies (OTAs). Hospitality businesses pay these companies a small fee for the referral. These business-to-business (B2B) relationships are extremely important, as they are a major channel for attaining new customers. If a major B2B relationship were to end due to a lost contract, it could lead to negative consequences, such as layoffs or a complete company shutdown. Often, commercially-available insurance policies will not cover these risks, or they may be too expensive for the average mid-market business.

Captive insurance coverages are tailored to a business’s specific insurance needs and can thwart the effects of a lost B2B relationship. This is just one example of how captive coverages can work as a supplement to commercial insurance within the hospitality industry.

Other examples of captive coverages include:

  • General liability
  • Loss of a Key Business Relationship
  • Loss of a Key Customer
  • Breach of Privacy
  • Cyber Risk
  • Loss of a Major Supplier
  • Regulatory changes
  • Supply chain breakdown
  • Mold
  • Legal defense
  • Employment practices liability

Under a captive insurance arrangement, hospitality companies pay premiums to the captive insurance company, just as they would to a commercial insurance company. Funds accumulate inside the captive and can fund losses in the case of a loss event. IRC 831(b) captives offer a 0% Federal income tax paid on the captive’s underwriting profits.

Moreover, if there is undistributed earned surplus, as in the case where there are no claims made in a given year, the funds can be distributed as a dividend or as a secured loan back to the operating company. Premium costs are lower, because in the commercial markets, “special” coverages tend to be more expensive. These coverages may not be available at all commercially. Business owners have better control over their risk management efforts, more comprehensive coverages, and a more advantageous planning solution.

Captive insurance for hospitality companies is a powerful supplement to commercial insurance. Smart business owners who form their own captive insurance company can count on a new level of loss protection as they continue to combat risk.

Comprehensive Captive Planning for Hospitality Businesses

The benefits of forming a captive insurance company can be fully realized when business owners partner with an expert captive management team, like Capstone Associated Services. Capstone Associated Services, Ltd. is the most integrated and largest outsourced provider of captive insurance services for the U.S. middle market. Capstone offers platinum level captive planning and administers property & casualty captive insurance companies that provide alternative risk financing services throughout the U.S. With over 25 years of experience, Capstone provides turnkey services to businesses in the hospitality industry, and many others.

The company has an award-winning track record for standing with clients in the design, implementation, ongoing management, and defense of their property & casualty captive insurance programs. Capstone has successfully administered and successfully managed over 200 captives since 1998.

Capstone's staff of professionals includes Chartered Property & Casualty Underwriters, insurance experts, risk managers, claims personnel, accountants, and administrators. Capstone’s expertise is bolstered by long-standing relationships with outside CPAs, risk managers, property & casualty professionals, and actuaries.

Together, this team offers middle market companies the most comprehensive risk planning solution available.

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