Page 78 - North American Clean Energy January February 2018 Issue

investing in clean energy
by Monica Everett
MOST CORPORATE BUYERS OF INSURANCE HAVE
heard the terms “Captive Insurance”, or “Captive Insurance Program”. However, many business owners may have di ering levels of understanding of this concept.
The goal of this article is to offer clarity on the subject of captive insurance programs, and to provide basic knowledge on just how a captive program could benefit business performance and profitability.
What is a “Captive”?
A “captive” is an insurance company created and wholly owned by one or more non-insurance companies, to insure the risks
of its owners. For example, a group of businesses, individuals, a franchisor, or their association, could form a captive. Captives are a form of self-insurance, with full reinsurance protection, where the insurer is owned wholly by the insureds. ey are typically established to meet the risk management and insurance needs of its owners or members.
One of the main reasons businesses form a captive program is to earn underwriting pro ts and investment income based on the performance of their individual company. Because members have the potential to earn underwriting pro ts
and investment income, participation in a captive insurance program is viewed as a way to transform the insurance expense line of a P&L into a pro t source.
How does a captive work to save a business money?
For every dollar of insurance premium paid to an insurance carrier, roughly 60 cents is set aside to pay for claims and the carrier’s underwriting pro t. For a business, that dollar is paid out and gone. Even if a company practices good risk management, and works hard to keep claims low, the carrier will keep the pro t that results from their diligence.
In a captive program, that same premium dollar can deliver very di erent results. Because a company owns their insurance program, when claims are lower (due, in great part, to the e ort put forth creating a culture of safety in the organization), a portion of that dollar comes back to the bottom line in the form of pro t. e business, not the carrier, bene ts.
Captives are the fastest growing segment of the commercial insurance marketplace
Today there are over 7,000 captives operating in the world, with more than $10 billion in annual premiums, and over 2,000 captives domiciled in more than 30 U.S. states. e tremendous growth in captives domiciled both in the U.S. and worldwide, can be seen in both large organizations (over 90 percent of Fortune 500 companies own captives), and mid-sized companies; Group Captives, which insure mid-sized companies, are the fastest growing segment of the captive marketplace.
Why a captive program is right for the Renewable Energy industry
Renewable energy has had tremendous growth in the US in the past several years. e leaders in this space are seeing their Workers’ Compensation and GL premiums rise, while their historical loss ratios have been extremely low. ese accounts are often “assigned by analogy”, because it is a relatively new industry, and there is not enough rate- making data to support their own classi cation and rate structure.
Because of the low loss ratios and misclassi cation issues, most carriers cannot price these accounts appropriately with their current led rate plans. A group captive option is one of the few ways in which these accounts can take advantage of their strong risk management practices, and ultimately pay fair and equitable premium for their exposure.
The Captive Insurance Opportunity
Renewable energy
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