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Reasons for Setting up A Captive Insurance Firm

Captive insurance companies are set up as subsidiaries to manage the risk of the parent company. There are firms which pay high premiums for different risks, yet they are entitled to a small amount of claim which makes them consider having their own insurance company to save on this cost. There are many benefits that arise from investment.

There is an accumulation of money where the premiums are not remitted to a third party but to a subsidiary which means that any profit made belongs to the group. Most of the firms pay premium, and no risks happen. Captive insurance firms are able to work with the parent company to come up with the right amount of premiums. There is correct matching between the risk and the price charged.

Captive insurance allows the company to design a policy that meet the needs of the parent company. This means that the company can obtain the insurance cover required even if the general insurance market does not have this cover. Companies are assured of compensation when there is an occurrence of risk. Offshore companies can receive the cover that is not available in the traditional market.

When the company identifies the right cover that is needed, the process of acquiring it is completed within a short time. Senior executives do not spend a lot of cash trying to negotiate the policy as the company has set apparent guidelines. Availability of integrated systems within the company ensures that there is proper communication with the departments concerned and thus information about any changes in the policy flows smoothly within the organization.

Captive insurance companies know the full extent of the risks exposed to their parent companies. Traditional insurance puts a fixed charge on all the companies which may not be fair. This standard price may not be the correct amount that should be paid. It helps to avoid the problem of price fluctuations.

Parent companies put stringent safety procedures to guard against risks as lack of claims increase their profit margins. Though some risks cannot be prevented, others can be managed by ensuring that care is taken. The company can select the risks it can insure itself and allows others to be handled by a third party. Less claims from the captive firm translate to overall growth in the group. Captive insurance firms revenues always reflect on the mother company. Companies can be reinsured without paying commissions and fees to a third-party. When the company has grown, it has a surplus which makes it rely less on reinsurance as it capable of handling the risks.

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