Despite their best efforts, principals of development and construction companies are struggling with sky rocketing insurance premiums, a cost that dramatically impacts their profitability. Over the last 10 years, they have established quality-controls programs and their generals and subs have switched to less claims-prone materials and methods – all of which effectively reduce the risk of potential liabilities. Yet every year clients are paying out hefty premium dollars while the insurance companies are reluctant to grant a claim, if they grant it at all.
As a result, those in the construction industry are turning to an alternative insurance vehicle known as a captive insurance company. Set up and controlled by the owner, a captive insurance company assumes the risks – and the rewards – held by traditional commercial carriers. The advantages of selection of risks, liabilities control, premium retention and ultimately, return of profits to the owner of the captive, are highly attractive in today’s insurance climate.
Many states now allow these special purpose insurance companies. The world’s largest corporations and major contractors, builders and suppliers have already setup captives as a better choice than traditional insurance. Understanding the applications of a captive can position advisors and principals to add a tremendous amount of value in today’s insurance climate.
WHY INSURANCE COMPANIES DON’T REDUCE PREMIUMS.
Traditional insurance carriers do not correspond quickly and efficiently to changing risk environments, so they may keep premiums high for months, even years after actual risks level have declined. And even after recouping any claims paid out, they continue make handsome profit at the insured’s expense. Some insures argue that there are unforeseen risks they must price into theirs models yet this may not be true today. …….Cont.
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