Risk Management With Captive Insurance
The economic instability of the past several years has made it more difficult than ever for many companies that want to take out insurance on their assets. Particularly when the risks of having to face a major payout are high, traditional insurance companies can be extremely reluctant to issue policies. At the same time, companies still need address in order to some kind of insurance so that they can manage the level of risk to which they are exposing themselves. This is the environment in which Captive Insurance was invented.
Captive Insurance is essentially a manner of getting insurance for a company by creating a subsidiary that has no purpose in existence other than to provide insurance for its parent company. It does not offer, or even attempt to off, insurance products and services to the general public. It only operates in order to be prepared to offer a payoff if the parent company should run into some kind of set of circumstances or losses that the insurance policy is designed to kick in to cover.
The option of setting up Isle of Man Captive Insurance became more attractive in 2004 when they introduced legislation that permitted protected cell companies to operate from their island. The concept of this was that a larger company could have cells within it that would be treated as distinct entities. Each one would have its own revenue streams, assets, and liabilities. At the same time, they would be permitted to share their overhead costs. The major effect of this relative to Captive Insurance is that it makes this form of risk management economical in cases where it would otherwise not make sense to pursue it.
It has become extremely difficult for companies to get the insurance that they need on the traditional insurance market and so they have to seek out other options that allow them to protect themselves. One of the means of doing this is by setting up Captive Insurance, so that a subsidiary company exists solely to provide the necessary insurance to its parent. In this way, they bypass the normal issues of being an appealing risk for an insurer.
