Risk management planning is often one of the biggest dragons to slay when you’re optimizing your company’s bottom line. That’s because you need a certain level of industry-appropriate coverage to weather the unavoidable but unpredictable mishaps that crop up in the course of doing business, and it’s also just common sense to hedge against the biggest foreseeable catastrophes while you’re at it. Unfortunately, traditional insurance policy structures aren’t always the most efficient way to manage that risk. They’re great for some companies and for some common industries needs for most companies, but traditional insurance can also be inefficient and expensive for certain types of coverage or industries. That’s why any evaluation of your risk management planning should include a review of alternative risk transfer products and their benefits.
What Is Alternative Risk Transfer?
To put it simply, this term covers alternative policies and coverage options for the insurance you need. These models usually don’t replace bonding that you may need in addition to insurance coverage, but they do give you ways to optimize the cost of your insurance and bond package. Alternatives include commonly understood practices like self-insurance, as well as a variety of other options for companies whose cash reserves don’t quite meet the threshold for self-insurance. One alternative is captive insurance, or owning your own insurer. It’s a little different from self-insurance because a new company is set up just to service your original business, and also because many captives are group captives, meaning they are co-owned by businesses with similar needs to insure all the partner companies.
Managing a Captive Insurer
You might be wondering who does the work of handling money and writing policies when you team up with other companies to create a captive insurer. There are a few ways to handle that, but most commonly a third-party contractor is given the opportunity to administer the day to day business of the captive. Often, these managing companies will handle a variety of captives for different clients, relieving you of the administrative burden of running a second business while providing the great insurance service that made you want to go into captives in the first place.