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At its most basic level, captive insurance is a form of self-insurance that provides significant benefits to businesses with unique and high levels of risk. While captives aren’t right for every business, they can be appropriate for many contractors. After all, few industries are exposed to as much risk and workers’ compensation claims as construction.

Many contractors and construction executives, especially mid-sized companies, remain either unfamiliar with captive insurance or uncertain if it is a worthwhile risk management strategy. Following are some key considerations for contractors when evaluating captive insurance.  

A Strong Foundation

While Fortune 500 companies have the ability to entirely self-fund their captives, most mid-market companies are not positioned to do so. For these companies, group captives are a more favorable option. These types of captives spread risk among several partners, and many have been formed for both the construction industry and specific trade contractor groups.

Think of a group captive as a strong foundation for a firm’s risk management program. Just like the weight of a building is evenly distributed on and supported by its foundation, a group captive ensures the risk management program will not topple over because of high costs. Beyond cost savings, this setup can provide additional support resulting from services provided by the group captive companies, such as onsite compliance audits, safety training, program development and employee education.   

Custom Engineered

With captive insurance, contractors have far more control over claims and litigation management. What’s more, traditional insurance companies may not cover certain types of claims. With a captive, construction companies can make sure they’re protected against most known risk exposures.

Think of this particular aspect of a captive like a custom-engineered piece of architecture that’s meant for a very specific building and a very specific use. Unlike some options offered by traditional insurance companies, there’s nothing cookie-cutter about a captive insurance program. It can be made to fit a wide variety of needs and businesses.  

Built to Last

There is a misconception that setting up a captive provides a quick way to save money. In fact, this is not typically the case. However, over time, a captive can be a worthwhile investment that can offer construction companies significant cost savings.

Think of a captive as a very sturdy structure made with high-quality materials. If a construction company has done its due diligence and carefully evaluated the opportunity, it will continue to reap benefits long into the future.

It’s important to reiterate that captives do not work for every contractor. Before pursuing one, contractors should make sure they go through a rigorous review process with a trusted risk management partner.

Bill Motherway is president of New York operations at Conner Strong & Buckelew and vice chairman of the Vermont Captive Insurance Association. For more information, call (646) 216-2166 or email bmotherway@connerstrong.com.


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