As an insurance agent, you know how frustrating it is for your clients to deal with large or multiple claims, especially when it impacts their financial health. So, how can you help them manage these risks effectively within a captive insurance framework?
At Captive Coalition, we’ve helped many businesses mitigate their risks and handle claims through our deep understanding of captives. This article will guide you through the intricacies of handling large or multiple claims, how captive owners can minimize risk, and how this benefits your clients.
Claim Types in a Captive Insurer
Whether your client is part of a group or a single-parent captive, claims are inevitable. Even businesses with robust safety and risk management programs will face claims every five or six years. Here are the types of claims a captive owner can encounter:
- Frequency Claims: These are smaller, more common claims, typically under $100,000. While they might seem insignificant individually, when they occur frequently, they can add up and lead to larger, more severe claims. As the saying goes, “Frequency breeds severity.”
- Severity Claims: Ranging between $100,000 and $250,000, these claims can start to significantly impact premiums. In a captive, about 11% of the premium is usually allocated to this layer of risk.
- Catastrophic Claims: These claims exceed $250,000 and are the ones businesses fear most. They potentially lead to severe financial impacts or even loss of life. A commercial driver involved in a fatal accident could be an example of a catastrophic claim.
How Can Insurance Claims Be Avoided in a Captive?
To help your clients succeed in a captive, emphasize the importance of focused attention and adaptability. Here’s how they can achieve this:
- Pay Attention to the Details: The most successful businesses in a captive are those that meticulously document every incident and learn from claims. Encourage your clients to focus on understanding the causes of their claims and prevent them from recurring. This not only improves their internal processes but also reassures other captive owners that they’re taking their responsibilities seriously.
- Adapt and Improve: Every claim is an opportunity to learn and make changes. Whether it’s updating safety protocols or investing in new risk management tools, these improvements can save your clients money in the long run.
What Can Be Done to Create Stronger Risk Management?
Captive insurers offer resources that aren’t always available in traditional insurance markets. Here’s how your clients can make the most of these opportunities:
- Ask for Help: Captive owners don’t have to navigate these challenges alone. Encourage your clients to take advantage of the safety and risk management professionals available through their captive. Whether they join risk committees or consult with peers in a group captive, support is available.
- Engage with Risk Committees: These committees provide valuable insights into best practices and emerging risks. By engaging with them, your clients can strengthen both their own business and the captive as a whole.
Enhancing Safety and Risk Management Programs
Here’s how your clients can take ownership of their risk management practices:
- Take Ownership: The most successful captive owners are those who take full responsibility for their risk management practices. Encourage your clients to be proactive in minimizing risks and addressing issues as they arise. Captive insurers value owners who are committed to reducing risk.
- Update Regularly: Safety and risk management aren’t “set-it-and-forget-it” processes. Encourage your clients to regularly review and enhance their safety programs to stay ahead of new challenges and opportunities.
Managing Large or Multiple Claims with a Captive Insurer
To help your clients manage large or multiple claims, emphasize the importance of financial preparedness:
- Financial Preparedness: The first few years in a captive can be challenging, especially if claims arise. Encourage your clients to retain earnings in the captive for at least 3-5 years to build a buffer against potential claims. Captives are a long-term solution that provides benefits over time.
- Understanding Collateral: Many businesses are unfamiliar with the concept of collateral in captive insurance. Collateral is money set aside to cover future claims, acting as a financial guarantee. By understanding collateral, your clients can plan accordingly and maintain financial flexibility to manage unexpected claims.
Are Captive Insurers the Right Fit for Your Client?
Helping your clients manage larger or multiple claims within a captive requires understanding claim types and being proactive in risk management. By emphasizing the importance of categorizing claims and updating safety protocols, your clients can reduce potential losses and improve overall business operations.
Additionally, ensuring they understand the resources available through captive insurers will help them become stronger captive owners and realize the long-term benefits of this approach.
Next, make sure you and your clients understand the financial advantages and disadvantages of captive insurers. This will allow you to weigh the pros and cons and decide if joining a captive is the right solution for them.
If you have any questions or need a consultation, schedule a call with one of our insurance advisors at Captive Coalition.
