Captive insurance refers to a type of protection, when any assurance organization is under control and owned wholly by its insureds, not policyholders. The main aim is to protect the perils of its owners and get benefit from the prisoner insurer's income by insureds.
Frederic M. Reiss was the founder of a term «captive», when he was bringing his idea to life with his first client. It was the Youngstown Sheet & Tube Company which operated in 1950 in Ohio. Some «offshore» zones such as Bahamas, Gibraltar, Bermuda, Ireland, Malta, the Cayman Islands, Barbados, Singapore and others are residences where most of prisoner insurers are located. Captive companies use, as a rule, self-insurance kind of protection.
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Captive insurance in United States
The United States of America are one of the largest places, where captive assurance is wide spread. Great number of residences can be placed as onshore (within the judicature of the U.S.) and offshore (located out of the U.S. jurisdiction). Some states of the United States have the fastest growing of captive protection. Vermont, for example, had about 900 insurance corporations licensed as prisoner ones in August 2009. Delaware, Utah and Montana are also states of the U.S., which demonstrated the fastest growing with the captive assurance companies.
As an amount of captive departments in the U.S. raised year by year, the first certain law was created there in the 1970s. This principle supported foundation of captives in Colorado first, then in Vermont and Tennessee. For today nearly half of U.S. judicatures have acts, that are allow to have a captive license. The latest states being exhisting on market and entering it are New Jersey an Tennessee as well.
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As for captive management system, in the United States it represents a great number of small providers with administrative function of services. These companies, as a rule, do not make assurance policies and do not price them (because of the fact, it is a function of a corporate adjuster); they do not claim also for stating of federal tax issurances. About 80% of the worldwide prisoner organizations are associated nowadays with insureds of the United States. These protection agencies are stimulated by the Internal Revenue Code.
Captive insurance companies, or captives, provide such assurance coverage types as business protection, general liability, professional responsibility, workers' compensation. Auto insurance and property protection are also available for customers. Such items as officers' and directors' liability are as a part of reinsurance, that captive organizations offer.
Captive Insurance Company itself formed to cover perils of its parent department when this general corporation exposed to them. There are three variants prisoner assurance agencies can be created. They are: when parent department have no opportunity to find some certain group in order to insure against common commercial perils; in case parent company establishes that those quotes it pays to captive insurance firm are deductible as well; when amount of protection that such assurance firm suggests is more affordable than needed or requires better conditions of coverage.
All in all captive insurance has its own advantages. Among them are: reach that meets customer's need, improved money flow, capacity of a higher level, small deductibles, greater control about claim process, flexibility of funding and some other.
Any captive insurance company works inone common way. Having more than one corporation's affiliates, organization fixes a captive assurance firm as a fully owned subsidary. Then this corporation located in a place where it has an ability to operate legally with a license. The parent firm controls risks of a subsidary formed. The next step captive protection company counts all perils, writes policies and receive premium reimbursements. The subsidary at its turn pays taxes to the captive and captive as an insurer, places its money as future claim repayments.