Captive Insurance Claims: Legal Considerations to Prioritize
Much of the preliminary interest in captive insurance companies comes from the idea of tax benefits and decreased insurance costs. However, these benefits can blind some companies to the reality of the dual requirements of "risk distribution" and "risk shifting."
Depending on your envisioned structure, the risk factors can eliminate the possibility of tax savings. Plus, your initial savings on insurance premiums can be diminished by claims and transaction administration costs.
Although some businesses consider these as "deterrents," some continue to find workable solutions that move captive programs forward. Still, it pays to be vigilant with your captive insurance matters. Work with a trusted captive insurance lawyer to discuss the legal considerations associated with captive claims.
Why Consider the Legal Aspect of Claims?
If there is any conflict between the commercial insurer and the captive, more issues can arise. Even when the policyholder does not purchase commercial insurance, other insurance can be involved through pre-existing contracts or policies containing insurance provisions and indemnification.
The interaction between commercial insurance and a captive can lead to unprecedented loss situations, which may expose the captive to greater risks. Instead of worrying about risks, it's best to avoid them.
Conflicts between captives and commercial insurers can arise when the former issues primary coverage below the amount issued by the commercial insurer. For instance, an insurer's excess to a captive policy may defer the proof of the exhaustion of a captive policy. Some may even claim the unreasonable reimbursement of defense costs. In the end, the other insurer must pursue the captive as though they were a commercial insurance company, disregarding the captive's purpose or role within the insurance structure.
There is also a possibility that the captive arrangement may not yield the savings you anticipate. Still, this should not be a reason to dismiss the captive's benefits, especially when it has a proper structure, as well as if you can mitigate the risks.
Work with Attorneys Today
Instead of dealing with claims in the future, work with a trusted captive insurance lawyer who can offer the following:
- Counseling on regulatory requirements regarding licensure and application
- Advice on securities and corporate laws
- Counseling on corporate governance, company operation and other compliance matters
Reduce your risks with captive insurance by working with a licensed attorney.
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