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Small captive owner reaps benefit of alternative market coverage

Posted On: Feb. 1, 2018 3:53 PM CST

FORT LAUDERDALE, Fla. – Small captives can provide numerous benefits to organizations that have traditionally bought coverage in the commercial insurance market, a risk manager who recently established a captive said.

Setting up a captive allows an organization to design coverage that fits its specific needs and have better control over the underwriting and claims process, said Chuck Yates, risk manager at Spinx Co., a privately held firm based in Greenville, South Carolina, that operates about 80 convenience stores at gas stations throughout the state.

He was speaking Thursday at the World Captive Forum, which is sponsored by Business Insurance, in Fort Lauderdale, Florida.

In 2016, as Spinx continued to grow, it decided to reevaluate its commercial insurance program and examine the alternative risk transfer market, Mr. Yates said.

One of the drivers behind the decision to review its program was the desire to have coverage that was  tailored to Spinx’s risks, he said.

“In commercial policies, there are always exclusions and we wanted to try and address some of those exposures in the captive market,” Mr. Yates said.

The company decided to form an 831(b) captive that is also a member of a risk pool, he said.

A year on from establishing the captive, Spinx has seen several benefits and Mr. Yates’ role has changed, he said.

In particular, he now has direct contact with underwriters rather just with his broker, Mr. Yates said.

“To be able to sit down with an underwriter and say, ‘These are my exposures,’ and then be able to design the policies to match the exposures; what a huge benefit that is to our organization. You don’t get that opportunity in the commercial market,” he said.

As a result, he was able to develop a more comprehensive, enterprise risk program, Mr. Yates said.

In addition, risk managers at firms that own captives can combine their commercial program with a captive program to improve coverage, he said.

For example, captives can be used to cover commercial policy deductibles, potentially increasing deductibles and reducing commercial premiums, Mr. Yates said.

Captive can also be used in conjunction with commercial policies to provide additional coverage, and policies written through a captive can be written on a stand-alone basis with their own terms and conditions, Mr. Yates said.

In addition, a policyholder who owns a captive selects its own legal counsel, rather than an insurer, and has greater control of the claims process, he said.