Many independent agents hesitate to discuss captive insurance with their clients, often due to uncertainty or a lack of understanding. This hesitation can lead to missed opportunities to provide clients with a powerful insurance tool that offers significant benefits.
At Captive Coalition, our sole purpose is to work closely with independent agents to educate them on captive insurance to help them protect their best and most prominent clients.
This article will help you address common misconceptions, simplify captive insurance for your clients, and build confidence when introducing captives as a valuable option.
Understanding Captive Insurance Misconceptions
One reason agents hesitate to discuss captives is widespread misconceptions. The most common misconception is that captives are the same as self-insurance, leaving businesses solely responsible for covering large claims. Understandably, this can be daunting, especially when clients imagine a $1,000,000 claim bankrupting their business.
However, this isn’t how captives work. Most captives balance risk and protection, utilizing mechanisms like fronting carriers and reinsurance to guard against catastrophic losses.
Another misconception is that only large companies can afford captives. Today, small to mid-sized businesses (SMBs) with annual premiums of at least $250,000 for workers' comp, general liability, and auto liability may qualify for group captives. A single-parent captive might be a good fit for businesses with $1 million or more in premiums.
Simplifying Captive Insurance for Your Clients
Explaining captives doesn’t have to be complex. Use simple, relatable terms to help clients understand. For example, liken a captive’s collateral to a security deposit—just as a security deposit ensures payment for damages in a lease, collateral ensures funds are available to cover claims.
Also, highlight that captives aren’t entirely different from traditional insurance; they offer more transparency and control. Assure clients they won’t need to manage the captive themselves—professionals handle the day-to-day. The advantage of a captive is that clients get to see and influence how their insurance dollars are spent.
Strategies to Confidently Talk About Captives
Many top agents find discussing captives intimidating. The best way to gain confidence is to take advantage of training, webinars, and resources that break down captive specifics.
At Captive Coalition, we offer training, but we also encourage you to use other trusted resources. When speaking with clients, focus on their existing frustrations. For example, if a client is experiencing rising premiums despite a good claims history, use this as an entry point to introduce how a captive can provide more control over costs.
Addressing Client Fears and Misconceptions
Clients may worry about the financial commitment or risk of a large claim. To address these concerns, be transparent about the pros and cons of captives. Explain how fronting carriers cover large claims, helping them feel more secure that a catastrophic loss won’t bankrupt their business.
Be upfront about financial requirements, including the need for collateral and the long-term nature of captives. We’ve found that honesty builds trust, and clients appreciate understanding the whole picture before making a decision.
Determining if a Captive is Right for Your Client
Only some clients are a good fit for captive insurance. To determine if it’s the right solution for your client, consider the following:
- Does your client have the right mindset and willingness to invest in risk management?
- Are they financially prepared to meet the requirements?
- Does their loss history indicate they would benefit from a captive?
If the answer is yes, a captive may be a great fit. However, if your client isn’t ready to be accountable for their losses, it may be better to explore other options.
Leveraging Success Stories to Build Confidence
Sharing success stories can help illustrate the benefits of captives to your clients. For example, one construction company struggling with high premiums due to misclassified risks transitioned to a captive, reclassified its risks, and reduced costs significantly while maintaining adequate coverage.
These stories can resonate with your clients by offering tangible examples of how captives work in real business scenarios.
Are Captives Worth Discussing With Your Clients?
Captives aren’t just an alternative insurance tool; they are a long-term strategy that offers businesses more control, cost savings, and customized coverage. Understanding captives allows you to confidently approach conversations with your clients and offer them better solutions.
For a deeper dive, check out our Captive Insurance 101 Guide for Independent Agents and explore the financial advantages and disadvantages of captives.
If you have further questions about captive insurance or want a consultation, schedule a call with Captive Coalition to speak with one of our insurance advisors.
