Case Study: Construction Industry
CAPTIVE INSURANCE SOLVES MAJOR INSURANCE DEFICIENCIES
This residential general contractor doing business in the western US found his
general liability insurance premiums skyrocket from $100,000 to $477,000 per
year for a $1 million / $2 million limit of insurance, forcing the company to
increase its deductible to $50,000 to avoid further increases. Very few
insurance companies were willing to insure residential contractors in response
to litigation surrounding mold claims throughout the US, forcing the GC to
purchase general liability coverage from a surplus lines insurance company that
didn't offer state guaranty fund protection in the event the insurer went
insolvent. A friend mentioned that he'd read an article about captive
insurance and that it might offer a solution to the general contractor's
insurance problems.
The general contractor contacted org
and we immediately began exploring whether the GC was a good candidate for
owning a captive insurance company. The GC's claims experience was
excellent. Loss prevention and contractual controls were in place.
The GC was also willing and able to commit capital to support the required
insurance limits until the captive was able to build up its surplus.
Next, we found an alarming exclusion in the GC's general liability insurance
policy: the GC was not insured for any new construction, when new construction
was the GC's sole business! So in reality the GC was self insured for this
major business risk while paying the surplus lines insurer nearly a half a
million dollars a year for a nearly worthless policy.
Within 3 weeks, we licensed a Montana captive insurance company for the
general contractor which:
- Provides broad general liability coverage with few exclusions
- Responds in the event a subcontractor's insurance becomes uncollectible
for any reason
- Offers better premium payment terms and rates
- Gives the GC total control over how customer claims are handled
- Evidences insurance to third parties
- Allows the GC to deduct captive premiums as a business expense
- Avoids current income taxes on captive underwriting profits
- Earns investment income on premiums and profits
- Returns captive profits to captive owners who pay tax at the capital
gains rate
- Enhances the GC owner's overall estate plan.
Like the GC, you may find that a captive insurance company can solve your
organization's insurance deficiencies while delivering many benefits that you
didn't know existed...that is, until now.
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