What are the Strategic and Tactical Benefits of Captives?
International Risk Management Institute (IRMI)
At a recent conference on captive insurance companies, I reflected on the strategic advantages that a captive can provide for achieving risk management objectives. The formal organization and financial reporting that are integral to captive ownership or membership provide a superb mechanism for highlighting and discussing risks and the approaches and costs of managing them with the C-suite. This is much more difficult to achieve when traditional insurance is used.
Of course, the most basic purpose of a captive is to smooth out the volatility of the insurance marketplace as respects pricing and coverage terms. Additionally, captives provide a means to fund for losses arising from new and emerging risks that traditional insurers are unwilling to cover. Captives are also handy vehicles for dealing with the challenge of allocating risk costs among operating units of a large organization to motivate risk control activities and standardize risk management approaches. Innovative risk officers are using captives as integral components of enterprise risk management programs.
These are just a few of the many benefits that captives can bring to the table for large organizations. What are some of the innovative uses of captives that you've seen?