3 Top Modern Risks Managed by Captive Insurance

Posted by on Tuesday, October 7th, 2014

Enterprise risk management is evolving, and captive insurance can help business leaders keep up with the times. Photo courtesy of Flickr CC user Paul Cross

Enterprise risk management is evolving, and captive insurance can help business leaders keep up with the times.
Photo courtesy of Flickr CC user Paul Cross

The private sector has transformed significantly in the past few years, leading to a whole new range of threats that must be mitigated to maintain corporate continuity. In fact, the most common causes of significant financial damage to businesses are shifting, and now many risks that were not even widely known or concerning a decade ago are drawing attention.

As common sense would imply, modern risks demand novel management and asset protection strategies, and the traditional approaches to insurance coverage have been difficult to align with these newer threats. On the other hand, more companies have already started to get on board with captive insurance, which is a more customizable approach to risk management that puts control back into the hands of the business owner.

Captive insurance programs can be effective measures to patch holes in existing coverage, which was among the driving catalysts for many business owners to begin considering these options. Taking that a step further, though, why would companies not simply make the full transition away from traditional insurance coverage and toward captives to get the utmost protection?

There are many modern risks out there that will need to be identified on a case-by-case basis, as there is no such thing as effective cookie-cutter approaches to threat mitigation. However, there are a few types of novel threats to corporate financial performances and wellness that businesses are beginning to face today, and captive insurance might be the best path forward.

Here is the breakdown of our top three, in no particular order:

1. Downtime

With all of the news about data breaches and subsequent damages that has been circulating the national media, many business owners might forget that downtime can be just as devastating, especially as companies become more reliant upon digital technologies. Andrew Lerner, writing for Gartner, recently explained that the industry-recognized average cost of downtime is equivalent to roughly $5,600 each minute.

What’s more, he pointed out that as time goes on, the damages get more significant, to the tune of more than $300,000 per hour. Imagine if you business has annual revenues of $6 million, and an instance of downtime occurs that lasts more than a day. If this is not all that scary to you right now, it certainly will be when you are trying to foot the bill for these uncovered threats.

Traditional risk financing is still slowly trying to catch up to these types of needs, but business owners will be able to proactively protect themselves against the dangers of downtime with a captive insurance program.

2. Auto insurance

Although automobiles are assets that companies have had to insure for decades, business leaders must recognize that the rules of the road are changing quickly and erratically. New models, novel technologies, and an endless stream of innovation are combining to make the automotive industry highly exciting, but the ways in which companies will need to insure their fleets will also likely change just as quickly.

Take, for example, autonomous or self-driving cars, which are expected to become more popular in the coming years. The Insurance Information Institute noted that these and other innovations will almost certainly have an impact on liability, underwriting, and other aspects of corporate fleet coverage. Captive insurance will often be a more advantageous method of covering these types of forthcoming risks, as the company will have more control over the finer points of the protection.

3. Change management

Not all that many companies will be able to stay exactly the same while the world evolves around them, and most will have to make some significant changes. Any type of major shift in corporate strategies can not only be stressful, but represent significant risk. Luckily for captive insurance users, change management and estate planning are inherent benefits of these programs.

The National Association of Estate Planners and Councils marked captive insurance as an exceptional planning tool for the right types of businesses, and one that can have long-term cash flow benefits which will make shift in strategy and ownership a bit more streamlined. In a word, captive insurance can significantly improve an organization’s ability to transform with the times.

Why now?

These are only a few risks that are becoming a bit more widespread with the passing of each year, but many more are sure to arise in the near future. Businesses that proactively deploy captive insurance programs now will be better positioned to face these and many other challenges head-on when the going gets tough.

Because of the ability to tailor coverage to specific needs, captive insurance will almost always be the better choice for novel risks when compared to traditional programs.

If you would like to learn more about what captive insurance can do for your organization, consider scheduling a no-cost alternative risk financing review with the qualified brokers at Owen-Dunn today.

Owen-Dunn is a trusted advisor on risk, benefits and insurance to clients of all sizes and across all industries. Our passion is creating intelligent, flexible coverage solutions for both captive and traditional insurance clients. Contact us today or join us at one of our events!

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