The Million dollar question!


A MILLION DOLLAR CASH ADVANTAGE is exactly what a captive might mean to a surgeon at the beginning of a career. For a doctor well into a life’s work, the savings that might be achieved by use of a captive could well determine the quality and point of retirement. How much? Without the loss of one penny set aside in loss reserves for the risk of professional liability, captive owners save at least one third or more of their cost for liability insurance.


A Captive is a privately held insurance company formed for the sole purpose of providing insurance to that company’s owners. A captive is a corporation qualified by governmental authority to operate as an insurance company for limited purposes. A captive is administered in the same manner as any other corporation in the conduct of business.

It is important to note that although insurance affairs are usually contracted to experienced trades people for the day to day operations, the captive’s owners should always maintain total control of all business decisions as well as the captive’s money accounts.


An insurance company reserve account is money set aside from premium dollars to pay future claims. Yet, this money is only a portion of the premium dollars you pay. Added to funds for loss reserves are sales commissions, advertising and marketing expense and the cost of the company’s administration overhead as well as an allowance for profit. Therefore as little as 55 or 60% of the premium dollars you pay are actually set aside for the purpose you pay them, to pay for future liability claims. A Captive will set aside the same amount of money into reserves as a commercial insurance company. However, the captive will eliminate most, though not all of the commercial insurance company’s expenses.


The advantages of owning a Captive are well known to American industry and not for profit institutions. Only recently, due to legislative reforms, have captives become available to individuals and small groups. The various reasons for forming captives include:

Over a period of time, loss reserves become a sizable asset. The income from the investment of those assets directly benefits the shareholders of commercial companies. Owning the company yourself means you benefit from the investment of loss reserves.

If you cannot afford to bear the loss of your own risk, owning a captive means you can access the reinsurance market, which is effectively buying insurance wholesale. Owning a captive means you may determine how much risk you can afford each year and how much you wish to pass of to reinsurance companies.

Buying insurance from the commercial companies means you are subject to the vicissitudes of the market place. Your rates are affected by both man made and natural disasters. Owning your own company means you have a reliable place to insure yourself each year.

Control is a central issue. Captive owners control their companies. They control how claims are handled, how investments are made and they control rates and underwriting so long as the company comports itself in a financially responsible manner.

Asset protection has become an increasingly important factor in the establishment of captive insurance companies in recent years. To learn just how captives are used for asset protection, you should talk to a captive consultant.


The captive consultant is an adviser, who after understanding your requirements will draft a Plan of Business offering a practical solution designed to save you money by undertaking the development of a captive. The captive consultant will help you decide on a jurisdiction for your captive. He will assist you in locating a reliable third party administrator who will provide an office and staff to perform routine business matters for your company. He will draft all necessary documents for the application of you company charter. He will provide support services and be your eyes and ears after your captive is operational. The captive consultant works on a fee for services basis.


As a form of “self-insurance”, the captive approach may provide the following benefits to its shareholders and owners:

SUBSTANTIALLY LOWER PROFESSIONAL LIABILITY EXPENDITURES (Typically 30% below standard rates) Stable assurance of CONTINUOUS COVERAGE EFFECTIVE RISK SHARING through re-insurance or wholesale arrangements EQUITY ACCUMULATION on the captives capital and reserve accounts REDUCED EXPOSURE i.e. the captives claim records vs. the industry and regional averages FULL ACCESS to competitive, worldwide, wholesale re-insurance markets BENEFICIAL SELF-DIRECTION of the captive’s corporate resources Enhanced capital investment LATITUDE MINIMAL INVOLVEMENT in day-to-day operations of the captive All accounting, reporting and actuarial requirements FULLY AND PROFESSIONALLY OUTSOURCED

To sign up for an online seminar, or to request that a consultant call you or visit your practice and carry out a presentation to you and/or your colleagues, visit us at

How useful was this post?

Related Interesting Posts:

Author: Piyawut Sutthiruk

Losing weight will keep you healthy and have a long life. Cheer Up!

Leave a Reply