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Small Business Captives


Financial Fitness May 2016Your small business may benefit from pursuing a captive insurance company. Karen Stern, Partner in Charge of the Entrepreneurial Services Group, discusses what owners should consider before making the “captive” switch in this month’s “Financial Fitness,” as featured in Small Business Monthly.

Businesses have been utilizing captive insurance companies (or “captives”) for decades. In the right setting, a captive provides opportunities for businesses and their owners to take more control over the risk management function, reduce costs and participate in the profits that typically go to the commercial insurance companies.

So what should a small business owner consider when contemplating a stand-alone captive strategy?

  • First, understand that a captive is a regulated entity; amounts paid to the captive need to remain in the captive in order to be able to pay claims. The captive can’t be a “personal piggy-bank.”
  • Second, because the captive is a regulated entity, it needs to be respected as such. That includes employing appropriate service providers to run the captive on a day-to-day basis, maintaining proper accounting records and sufficiently capitalizing the captive. Keep in mind that the Department of Insurance will need to approve loans or distributions out of the captive.
    The policies issued by the captive can be more flexible than those found in the commercial marketplace but should still contain the appropriate terms and have premiums determined on an arm’s length basis.   Claims covered under the issued policies should be submitted to the captive.
  • Finally, respecting the separate existence and legal formalities of a captive is critical to ensuring that the benefits sought from its establishment will be realized.

It’s important to get all of the proper information while exploring your risk management and insurance options. To pursue a captive strategy for your small business, contact your business advisor or Alan Fine, CPA, JD, Partner in the Brown Smith Wallace Insurance Advisory Services group, at



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