If you’re reading this, it’s likely your clients are frustrated with sudden premium hikes from Federated Insurance, despite having a clean claims history. These conversations can be tough, especially when your best clients have done everything right to manage their risks.
Why are they seeing these increases? And more importantly, how can you help?
At Captive Coalition, we work with independent agents to help them protect their top clients, particularly during moments of frustration. We provide education on captive insurance so you can offer solutions that keep your best clients protected while controlling their costs.
By the end of this article, you’ll understand why these rate hikes happen, how to explain them to your clients, and what alternatives you can offer to help manage their premiums.
Why Are Federated Insurance Rates Increasing?
Here’s the core issue: insurance rates can go up even when a client has a perfect claims history. Federated Insurance, like many traditional carriers, operates on a pooled risk model. This means premiums are shared across businesses in the same industry. If other businesses in your client’s industry are experiencing losses, your client’s premiums may increase, regardless of their own claims.
For example, wildfires in California might lead to increased rates for auto dealers across the country—even if your client’s business isn’t in the affected area. This method of “class underwriting” is often the reason for unexpected rate hikes.
What Can You Do to Help Your Clients Lower Their Insurance Premiums?
When premiums rise, your clients will naturally look for ways to reduce costs. Here are a few strategies you can discuss:
- Increase the Deductible: If your client has strong risk management and a low claims history, raising the deductible can reduce premium costs. However, this comes with the trade-off of higher out-of-pocket expenses if a claim occurs. It won’t eliminate the hikes but can soften the impact.
- Shop Around: Exploring other carriers might yield more competitive rates, as different companies have different underwriting criteria. Keep in mind, though, that this could be a short-term solution—your client may still face similar increases as the market changes.
- Consider Captive Insurance: Captive insurance is an alternative to the traditional model, allowing clients to self-insure. In a captive, your clients become owners rather than policyholders. Coverage is customized to their business needs, and because they share risk with like-minded businesses (in a group captive), they have greater control over costs.
Captive insurance isn’t for everyone, but it can offer long-term savings for clients who prioritize safety and risk management. Clients avoid market-driven premium hikes and can benefit from the captive’s profits when things go well.
Addressing Common Client Concerns About Captive Insurance
When introducing captive insurance, you may encounter these common concerns. Here’s how to address them:
- “Isn’t Captive Insurance Risky?”
Captives do involve an upfront commitment, but they’re designed for businesses that are already good at managing risk. In a well-run captive, your clients are rewarded for their safety efforts rather than penalized for losses in their industry. - “What If We Need to Exit the Captive?”
Exiting a captive is possible with proper planning. Clients must understand that captives are a long-term insurance strategy, offering control and transparency they won’t find with traditional carriers. - “What’s the Initial Cost?”
Entering a captive requires an initial investment, often including a risk management program audit. While there is an upfront cost, the long-term savings and potential returns typically outweigh these expenses.
What Insurance Strategy Works Best for Your Client?
Dealing with insurance premium increases is never easy, but educating your clients on their options—including captive insurance—gives them a chance to take control of their costs. Your role is to offer honest advice, expertise, and an understanding of both traditional and captive insurance models to find solutions that align with your clients’ long-term goals.
To better understand captives, check out our article comparing captives to high-deductible plans and see which option might work best for your clients.
For a deeper dive into captives, read our Captive Insurance 101 Guide to better understand the basics and help your clients.
If you have any other questions about captives or would like to schedule a consultation, contact one of our advisors at Captive Coalition.
