As a contractor, it is definitely not easy to deal with the commercial insurance market, let alone to understand it. Though insurance is basically made to cover expenses and losses, dedicated companies are not very eager to do so when the damage is done.
And, tough things might seem easier for large contractors, they frequently look for alternatives against risks. The options include so-called captive insurance companies, self-insurance, purchasing groups or risk retention groups.
A popular business magazine conducted a research in the late 2000s and found out that there were over 5,000 captive insurance companies. Now that’s sure something. It is a number that proves the popularity of this alternative.
Their main idea relies on the fact that several contractors can form captives to insure themselves or other parties. Some businesses didn’t reach a level that allows them to afford the requirements of a captive so they can just “rent” one from another company. By doing this, they share not only the risks, but the profits as well.
Self-insurance is also pretty popular. A large deductible program can come in handy for workers’ compensation and therefore for partial self-insurance.
Risk retention groups refer to several businesses belonging to the same market that create a special insurance firm to cover liability issues, while purchasing groups buy liability policies from an insurance company.
Obviously, nothing is perfect in this area of activity and there are downsides and strong points for every alternative. Captives are great when it comes to risk management but they fall short mostly in terms of capital requirements. Nearly all the others involve costs that are quite unpredictable, though they minimize some costs and provide a certain degree of loss control.
It all comes down to predicting with increased accuracy the eventual losses in order to boost the advantages and to reduce the weak points of the insurance options. However, any contractor that wants access to such alternatives needs a stable financial situation. The ability to handle resources is very important here.
All in all, it is essential to talk to an expert in the field. An insurance agent can analyze all the features of these methods for one’s business. While it is true that regular insurance is not the sole go-to option, this doesn’t mean that business owners should randomly pick something else just for the sake of diversity.