Captive Insurance

Captive Insurance

Gaining control over business insurance costs

Captive insurance companies are an increasingly popular risk-management tool among business owners because—when properly structured and operated—captives offer wide-ranging benefits. However, despite their advantages, captives are real insurance companies with specific, often challenging, compliance, tax, and claims-related requirements.

Butler Snow’s legal team has the background and credentials to help business owners successfully navigate the formation of a captive insurance company. We also provide tax compliance review and consulting, offer regulatory and claims assistance, and deliver many other services throughout a captive’s lifecycle. Our firm has established an ongoing, leadership role in the captives market, working with industry groups, venture capital firms and private industry to support the formation of captive insurance companies. One of our attorneys has, literally, written captive insurance law—drafting legislation, administrative rules, and policy advice in Tennessee.

Because of our deep industry involvement, we can evaluate your commercial insurance needs and offer the most effective solution based on the latest industry knowledge and our direct connections to, and participation in, the evolving thought leadership within the captives industry.

Is a captive insurance company right for you?

Businesses form captive insurance companies for multiple reasons. Our team can help you assess whether or not it makes sense for yours.

Some reasons for forming a captive include:

  • Controlling insurance premiums: When insurance premiums are out of line with the loss experience of a business, a captive can help rein in costs. For example, business owners might greatly increase their deductible for commercial insurance, to cover catastrophic events, and then form a captive to handle risks that fall below their delineated threshold. This saves on premium costs, but may also, depending on claim history, save much more.
  • Gaining direct access to the reinsurance market: Traditional insurance carriers sell much of their risk to reinsurers, which adds costs for end-users. As an insurance client, you cannot directly access the reinsurance market, but a captive does have access to this market. This means you can eliminate the middle-man costs.
  • Unbundling claims decisions: When you file a claim with a traditional insurance carrier, you lose control of your destiny. Your carrier determines whether to settle, selects your legal representation, and controls numerous other related decisions. A captive allows you to unbundle those decisions, putting control of each decision back in your hands.
  • Managing risk more effectively: Captives also help companies focus on their risks and incentivizes them to provide more training or otherwise mitigate risk through improved safety measures. A captive can even be fully or partially owned by employees, incentivizing everyone to operate at optimum safety levels to lower claims costs, with savings passed through to the captive’s owners.
  • Tax considerations: While there are available tax deductions that may be beneficial, a captive is first and foremost an insurance entity. Captive taxation matters are constantly evolving, so monitoring tax compliance is required.

These are just some reasons behind forming a captive insurance company. Much depends on the customized needs of each client. Butler Snow provides counsel to help you during all stages of captive formation and operation, such as:

  • Working with your captive manager to determine if forming a captive makes sense and assisting in formulating the right structure for your captive
  • Entity formation services including preparation of corporate formation documents and regulatory applications.
  • Providing tax compliance review and ongoing consulting; this is a dynamic area that requires constant diligence.
  • Monitoring ongoing operations; captives are sophisticated entities and are part of a highly regulated environment.
  • Serving as legal counsel to captive insurance governing boards.
  • Independent claims review.
  • Representation before insurance regulators.

Insurance costs are, typically, one of the top three expenses for businesses, so captive insurance companies make sense for many profitable businesses. Butler Snow’s legal team provides responsive captive-specific counsel, as well as the resources of our full-service law firm, to help you determine if a captive provides enough benefits for your company. We can work alongside other captive insurance service providers such as your captive manager, program manager, actuary, and insurance producer to help you implement and operate your captive insurance company.