Many large businesses striving to mitigate financial strain often turn to captive insurance. This offers insurance agents and brokers additional economic opportunities to increase revenue beyond traditional commissions and profit-sharing. While agency captive insurance is a helpful financial vehicle, it’s also essential to know if this coverage option is right for you. Here are three things to consider before purchasing agency captive insurance.
Generally, agency captives are formed as a reinsurance company. Then, an insurance agency operates the agency captive. This is helpful for these captives because a reinsurance agreement allows the insurance carrier to accept a portion of the insurance risk.
Agency Captive Structuring
For captive insurance to work correctly, it’s important to address how it’s structured. For many agency captives, it isn’t ideal to assume 100% of the risk written by the insurance carrier. It’s also essential to consider how much risk within a policy should go toward the captive.
Captive insurance is most prevalent in a challenging market where insurance premiums are at their highest. Businesses can then mitigate financial strain by looking for alternative risk management. Generally, agency captives are more likely to thrive during a demanding market because commissions often significantly grow in proportion to underwriting profits.
Agency captives potentially offer opportunities for generating additional profits and spurring top-line growth. When set up correctly, these alternative risk management platforms can provide coverage even when premiums are high.