Group captive insurance has gained traction with Study Groups members over the last number of years as an alternative to traditional insurance. At its core, a group captive is an insurance company collectively owned by multiple businesses with similar risk profiles. This model allows members to better take control of their insurance destiny—managing costs, customizing coverage, and influencing claims handling in ways that are not possible with traditional carriers.
Trends in Petroleum and Construction Industries
In recent years, the petroleum and construction sectors have seen a surge in liability and workers compensation group captive participation. This growth is largely driven by the steady increase of conventional insurance premiums due to market hardening and rising claims costs. Safe companies are increasingly deciding to pursue ways to potentially financially benefit from their safe operations, and group captives offer that opportunity. Participation in a group captive also encourages stronger risk management practices, often resulting in companies improving their already strong safety records and operational efficiency.
Benefits of Joining a Group Captive
The potential advantages of group captive membership are compelling:
- Stability: Members focused on safety often enjoy more stable premiums.
- Profit Participation: Unlike traditional insurance, where premiums are sunk costs, captives allow members the opportunity to share in underwriting profits and investment income.
- Greater Control: Members have a greater influence on claims handling, safety protocols, and risk management strategies.
- Tailored Coverage: Policies are designed to meet the unique needs of petroleum and construction businesses.
- Networking Opportunities: Captives foster collaboration among like-minded companies, promoting shared best practices and industry innovation. A good group captive can act almost like a risk control Study Group with high levels of sharing and a mutual commitment to becoming safer, better companies.
Considerations Before Joining
Despite the benefits, joining a group captive requires careful consideration:
- Capital Investment: Members must contribute initial capital, which can be a barrier for some businesses.
- Risk Sharing: If losses exceed expectations, members may be responsible for a portion of other participants’ claims. The amount of risk sharing varies considerably across captives. Some group captives are intentionally structured to minimize risk sharing.
- Long-term Commitment: Captives are not short-term solutions; they typically require multi-year participation to realize full financial benefits.
- Administrative Responsibilities: Members are actively involved in governance, requiring time and expertise.
Is a Group Captive Right for You?
Businesses best suited for group captives typically exhibit:
- Financial stability and a proactive approach to risk management.
- Frustration with the unpredictability of traditional insurance.
- A desire for transparency and control over insurance costs and claims.
- A willingness to collaborate with peers to improve collective risk outcomes.
Choosing the Right Group Captive
It is important to choose a group captive that is a good fit for your company. Success in a group captive hinges on not only being a safe company, but also on selecting the right captive partners. Look for:
- Industry Expertise: Agents and group captives who understand the specific risks of petroleum or construction. For your business to become safer, you want a good portion of the captive’s energy and focus to be on reducing the kinds of risks you specifically face in your business. You also need the specific agent you work with to understand your business and your industry.
- Culture: A strong culture of sharing, engagement, and mutual accountability. Sharing best practices is only valuable when companies actually engage and share. Results are more likely in a culture where group captive members hold each other accountable to becoming safer, better companies.
- Risk Management Track Record: Group captive partners with a history of managing successful group captives in your industry and who offer robust claims handling, loss prevention, and safety programs tailored to your industry.
Group captive insurance is not the right fit for every business; however, for companies committed to becoming safer, it has the potential to be a great opportunity — not only to realize a reduced insurance spend, but to become a better company in the process.
