Captive Insurance Structures Designed for Different Needs, Goals and Funding Abilities
Captive insurance entities can be structured in a variety of ways depending on the participant’s needs, goals, and funding abilities. The following are some of the more common structures that can be used.
In this model, a captive insurance company is typically a wholly-owned subsidiary of a parent company. These captives are usually closely controlled by the parent company and are generally used by companies that have insurance and risk management needs that are significant enough to justify the financial costs of being solely responsible for the captive’s operational costs. Companies that consider forming a pure captive generally do so to improve risk management and to maximize the benefits of I.R.C. 831(b) election thereby sheltering up to $2.2 million in taxes.
Group or Association Captive
These captives are formed to provide captive insurance solutions to several members composed of trade association members or companies engaged in the same industry. This model can allow groups of smaller companies that have similar risk profiles to pool their insurance needs and resources to improve their risk management efforts at lower possible costs than traditional risk transfer vehicles.
This form of captive is typically selected by users that may not have the capital resources to participate in a traditional captive insurance program. To that end, insurance companies provide access to captive facilities by requiring users to provide collateral to mitigate risk to the rent-a-captive.
Mark A. Rysberg is a construction lawyer who maintains a local and national practice representing owners, contractors, subcontractors, and suppliers on a variety of issues affecting all aspects of the construction industry.