Understanding Captive Insurance Companies Series – Part 2 of 3

Property & Casualty, ConstructionIn the first part of this blog series, we discussed the benefits of forming a captive program. A captive is a closely held insurance company established to insure the risks of its parent company and affiliated groups. Like with any big decision, it is important to ask yourself questions. Here are questions to consider when determining if a captive insurance program is right for your business:

  1. What is your organizational structure?
  2. How long have you been in business?
  3. What is your company’s approximate annual revenue?
  4. Considering revenue, how much bigger will your company be in 5 years compared to today?
  5. As you grow will your profit margins diminish, stay the same or improve?
  6. How would you describe your company’s long-term debt situation?
    • Highly leveraged and will continue that way
    • Highly leveraged but reducing debt systematically
    • Reasonable debt for our size and industry
    • We borrow as needed but generally avoid it
    • No long-term debt and unlikely to need it in the future
  7. What percentage of your company revenue do you collectively pay in insurance premiums to traditional carriers? (Examples: property, casualty, bonding, workers’ compensation insurance, health insurance, etc.)
  8. What percentage of your net income did you pay in taxes on average over the last 3 years?

In the next blog of this series, we will discuss how to form and operate a captive insurance program. A captive insurance company is typically most effective for contractors that consistently are at the top of the industry in terms of size, financial stability and claims. AssuredPartners NL offers a wide variety of construction services including captive insurance programs. To learn more, visit AssuredPartners NL Construction.

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