Fortune Favors the Insured

Chapter 3: Why the Middle-market? When delving into the realm of captive insurance, it becomes evident that the majority of literature on the subject primarily caters to large corporations, leaving middle-market companies overlooked, and lacking equal treatment and attention compared to larger corporations. This discrepancy can be attributed to several key factors, including the unique risk profiles of large companies, the higher costs associated with establishing and maintaining a captive, and the limited resources available for middle-market companies to navigate the intricacies of captive insurance. Captive insurance, a concept whereby companies create their own lawful insurance subsidiary to cover risks and losses, has gained considerable attention in recent years, due to its potential benefits. However, the focus of most books on captive insurance tends to revolve around the needs and complexities of larger corporations. The commercial insurance market itself can be more focused on serving larger corporations due to the potentially higher premiums and larger policy sizes associated with these clients, bringing the insurers themselves more revenue. As a result of insurance companies prioritizing larger accounts that generate more significant revenue, this leaves small and medium-sized enterprises (SMEs) with limited options and less favorable terms when it comes to commercial insurance arrangements. 3.1 Importance of Captive Insurance in the Middle-market Captive insurance, a form of self-insurance, has emerged as a significant risk management tool for companies operating in the middle-market. This chapter explores the importance of captive insurance for middle-market businesses, highlighting its benefits for larger corporations like Coca-Cola and Verizon. It emphasizes the significance of leveling the playing field for both risk and financial management for businesses of all sizes and industries, underscoring the value of captive insurance beyond the big players. Captive insurance plays a pivotal role in the middle-market by providing an alternative risk management strategy. Unlike traditional insurance, which involves transferring risks to external insurers, captive insurance allows companies to retain and manage their own risks (“Self- insurance”). This empowers middle-market businesses to have greater control over their insurance programs, tailor coverage to their specific needs, and potentially achieve cost savings. For large corporations like Walmart and Apple, captive insurance offers them the ability to create customized insurance solutions that align with their unique risk profiles and risk appetite. One of the key benefits of captive insurance for larger companies is enhanced risk control. By establishing a captive insurance company, these corporations can gain a comprehensive understanding of their risks and develop targeted risk mitigation strategies. They can utilize captive insurance to cover non-traditional risks, such as product recalls or reputational damage, which may not be adequately addressed by conventional insurance policies. Furthermore, captive insurance enables these companies to capture underwriting profits and investment income that would otherwise go to external insurers, thus potentially generating additional financial returns.

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