(as
published in the Western Business Journal )
There is a new industry on the horizon in Montana. In 2001, Montana became the 16th state to pass legislation opening existing insurance regulations to the captive insurance industry. Under Mont. Code Ann.§ 33-28-101 et seq. a company or association of companies may form a wholly owned subsidiary to insure the parent entity. In other words, the parent company retains part of the insurance risk within the company by a captive company, which collects the premiums and handles claims.
While retaining the insurance risk within your company or industry group initially sounds like it might be something to avoid, it may hold marked advantages. First, it allows the insured to control and reduce existing insurance costs. Cost savings and revenues can be realized through lower overhead costs than a traditional commercial insurer, plus the underwriting profits and investment income remain within the company. It also allows the captive insurer to access the reinsurance markets which generally have a lower cost structure than direct insurers.
Next, a captive insurer allows the company to pay premiums based on unique loss ratios rather than an industry wide standard. Commercial insurance companies spread their risks throughout an industry, without taking into account that some companies may have significantly lower loss experience. Thus, your company may be paying an unnecessarily high premium even though it does not share the same risk as other companies.
Finally, utilizing a captive may enable a company or association to manage its risk in a much more efficient fashion than traditional direct insurance. Many companies encounter risks that are uninsurable or the cost of insuring an activity is just not practicable. A captive insurer allows a business to individualize its claims experience.
The State Auditors Office in conjunction with the Secretary of State governs the procedures necessary to form a captive in Montana. Montana allows three types of captive insurers; (1) a Pure Captive is any company that insures the risks of its parent and affiliated companies; (2) an Association Captive insures the risks of member organizations of an association; and (3) an Industrial Insured Captive insures risks of industrial insureds that comprise the industrial insured group.
If you think a captive insurance company might benefit your business or industry group, or you have additional questions involving the captive insurance industry, contact John Huth of the Montana State Auditors Office at (406)444-5438. The law firm of Moulton, Bellingham, Longo and Mather, P.C. represents W.A. Taft & Company, Ltd., a nationwide leader in the captive insurance industry, and can further assist you with captive insurance inquiries.
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