No matter if your company teaches skydiving or sells cupcakes, every day you face risks in doing business. These could be as simple as employees breaking dishes or as devastating as a customer suffering a serious personal injury. Whatever the specific risks may be, you pay an insurance company a monthly premium to protect you from financial loss in case they occur. This is the standard way that businesses like yours deal with uncertainty, and, until fairly recently, few have questioned it. A growing trend, however, is to use alternative risk management strategies such as captive insurance. These techniques allow investors and owners to be more directly involved in risk mitigation and prevent the common mistakes of having either too much or too little coverage.
What Is Alternative Risk Management?
Insurance premiums are like vitamins. Everyone knows they are good for you, but they are pricey and you don’t always see the results right away. Some even question whether the expense is worth the alleged benefits. Convinced there must be another way to do things, many businesses have turned to alternative means to protect themselves. One such option is self-insurance, in which a business covers its own risks up to a certain value. Another is loss-sensitive coverage, which allows flexible premiums based on past experiences. These are good choices for companies with unique risks or those who experience frequent but small losses. Businesses operating under alternative risk management have increased incentive to operate safely since they are assuming more responsibility.
Fred Reiss created a form of alternative risk insurance in which a business forms and runs its own insurance agency. He dubbed his methodology captive insurance because he first used it to insure mineral mines that were essentially captive to his client, or in other words, were operated solely for his client’s benefit. Since that time the name has remained unchanged, and 28 states and the District of Columbia now allow this type of coverage.
There are three main categories of captives. An insurance company that insures only affiliates of the business that created it is known as a pure captive. Those that insure other businesses in the same industry are known as homogenous captives, and those that insure multiple industries are heterogeneous captives. A few more specific types of captives include the following:
- Protected cell
- Risk-retention groups
About Haughn & Associates
Founded by Michael Haughn in 1986, Haughn & Associates is a full-service, family-owned, independent insurance agency based out of Dublin, Ohio. H&A strives to provide the best possible price and unique insurance solutions across a myriad of industries, including construction, IT, Habitation & Commercial Property, Agriculture, and Engineering. Devoted to providing the best of business insurance, life and disability insurance, personal insurance, employee benefits, and bonds, H&A is proof that success lies in long-standing client relations and satisfaction. To learn more about how H&A can be of service to you, contact us at (877) 802-2278.