By Max Dorfman, Research Writer, Triple-I
Today’s inflation can lead to higher interest rates for unitholders – the insurance companies that own the insurance companies – according to a new Triple-I Executive Brief.
Captives in the group include security-conscious companies with a good loss track record, and each member’s investment is based on its most recent five-year track record. In addition, increased focus on pre-loss risk management and post-loss management can reduce member fees by the second and third year of membership.
“Each owner pays less,” says the paper, Public Captives: Low Cost Risk Opportunities. “The policies that are written are the most serious damages, such as compensation, high interest, car damage and physical damage.”
With these advantages, the captive group can help control the amount of litigation costs. This is especially important since the involvement of attorneys in corporate litigation – especially in the automotive industry – leads to expensive litigation and delays in recovery that add to the costs of the industry.
Indeed, a 2020 report from the American Transportation Research Institute found that average fines in the US auto industry grew from $2.3 million to nearly $22.3 million between 2010 and 2018 — a 967 percent increase, with the possibility of even higher fines to come.
Captives can better manage these costs by managing claims and reviews, often by providing additional support that makes claims more efficient and effective.
“Given that members’ premiums are based on their credit losses, this is yet another way for them to reduce premiums, improve efficiency and improve performance,” the Triple-I report said. “Individuals in groups can provide the best way to protect companies in several lines of personal injury insurance. Their popularity is expected to grow due to the economy and the increasing number of cases.”
Many companies that deal with captive groups are security conscious, even if they are often risk takers. “Even though they accept risky sales, they are not gamblers,” said Sandra Springer, SVP of Marketing for Captive Resources (CRI), a leading consultant to insurance companies with members in the captive sector.
“They are successful, financially stable, well-managed companies that are confident in their capabilities and committed to risk management and control,” Springer said. “They believe they’re going to win what they’re showing, and most of them do.”
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From the Triple-I Blog:
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Inflation Trends Shine Some Light on P&C, But Bottom Line Profits Are Missing.
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