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Understanding Captive Insurance

By May 14, 2024Insurance

As rates continue to increase, more and more people are wondering about captive insurance. The moment people try to compare rates through an agent, they find out their agent does not work for them, but rather for the singular insurance conglomerate they are part of. An insurance broker or agent like Strickler compares rates between various insurance companies to find the best coverage and rate for your specific situation.

What Is Captive Insurance?

Captive Insurance is when an insurance company develops its own insurance firm only to sell its own insurance.

Essentially, if you work with a captive insurance agent, then you will only be able to get insurance through them. If they do not provide the insurance you need you have to leave them. Captive Insurance is a type of self-insurance. The parent firm effectively becomes its own insurer, maintaining control over the insurance operations and taking on the risks related to its business, as opposed to acquiring insurance from conventional commercial insurers.

What Are Some Captive Insurance Companies?

Captive insurance companies include State Farm, Allstate, Erie Insurance, and Farmers Insurance. These businesses function as big insurance conglomerates that provide a variety of insurance products, such as life, house, and vehicle insurance. Although they could provide insurance to other clients, their primary responsibility is to underwrite the risks posed by their own policyholders.

What Are The Negatives Of Captive Insurance?

With the limited ability of captive insurance, there are a few negatives to utilizing a captive insurance carrier.

1. More Expensive Due To Lack Of Competition

One of captive insurance’s primary drawbacks is a potential lack of market competitiveness. Compared to regular insurers, captive insurance firms may not always offer the most affordable rates or coverage alternatives because their primary goal is to serve the interests of their parent corporations. This may reduce consumer options and raise policyholders’ premiums.

2. Blanket Approaches To Coverage

Many captive insurance providers will go with a blanket approach to coverage. If they do not provide full replacement and only partial in the situation of a roof, you have to either fully change your insurance or settle for their standards of coverage. The reverse can occur where you do not want the full coverage but their policy does not allow those customizations, so you have to pay to be overinsured.

3. Potential Risks If They Are Lax In Regulations

Captive insurance agreements may also result in certain risks. Compared to typical insurers, captive insurers could be subject to laxer regulatory scrutiny, which might result in insufficient reserves or undercapitalization. In the case of insolvency or unstable finances, policyholders can find it difficult to recover their losses or receive timely benefits.

4. The Captive Insurance Agent Does Not Work For You

Additionally, in the case of disagreements or claim denials may be restricted under captive insurance. If policyholders disagree with claims judgments or have coverage concerns, they may have few options for appeal or any other actions because the parent corporation essentially controls the captive insurer.

Don’t Get Trapped In Captive Insurance

Contact us to compare the insurance rates of a variety of insurance companies rather than being stuck with captive insurance. You should carefully weigh the benefits and drawbacks of captive insurance as well as their particular risk management requirements. Contact Strickler Insurance for a free quote.