More than 51 percent of companies throughout the United States have entered some form of alternative insurance program for their property and casualty insurance needs.
This shift is largely the result of severe losses from major storms and natural disasters, with 2017 considered to be one of the costliest years.
When evaluating the cost of business insurance, several factors affect property and casualty insurance rates for businesses all over the country. The short list includes year-after-year of large loss events, increased medical costs, higher automobile-related losses and adverse selection.
As property and casualty insurance rates rise, more business owners seek alternative options to traditional business insurance.
A viable option to the conventional insurance market is an alternative known as a member-owned group captive insurance program.
A member-owned group captive is defined as an insurance company that provides insurance to and is controlled by its owners. These programs serve a broad range of industries, empowering members with security and peace of mind that come from greater control over their insurance destiny.
Member-owned group captive insurance alternatives are nothing new. Many of the most successful group captives have been in existence for more than 35 years.
EFFECTS OF ADVERSE SELECTION
As more better-performing companies leave the traditional insurance market for an alternative such as a member-owned group captive, adverse selection becomes a critical component to those that remain.
Those better-than-average performing companies leaving for the alternative insurance option helped insurance companies offset losses from poorer-performing businesses.
Without the ability to offset losses, insurance companies have no choice but to begin increasing insurance rates to combat deficient loss ratios caused by the departure of the stronger companies.
If you’re a better-performing company choosing to buy insurance in the traditional insurance marketplace, you could be paying more for insurance, year over year.
Not every business will qualify for a member-owned group captive insurance program.
To qualify for this alternative to insurance, a company must show a strong commitment to safety, above-average loss history, be financially sound and pay a combined premium for workers compensation, auto liability/physical damage and general liability/garage liability in excess of $100,000.
For those who qualify, a captive insurance program may provide a long-term, stable mechanism to control insurance costs and cope with changing market dynamics.
PICKING A PROGRAM
There are captive managers in the alternative insurance market space.
When considering a member-owned captive insurance program, it is important to ensure the captive manager/consultant and the broker have a proven, successful track record and have the experience, knowledge and understanding of captives.
Do your homework, ask for references and speak to existing members who aren’t clients of the broker.
FOR THE LONG HAUL
A member-owned group captive is not a short-term solution.
Rather, it is a long-term, stable environment for strong companies wishing to obtain more control over their insurance destiny while reaping the benefits that may come with being an owner of an insurance company with other safe, quality and like-minded businesses.
Justin Beidleman is alternative risk adviser at Arbor Insurance Group in South Whitehall Township. He can be reached at 610-437-3340.