Traditional insurance serves as a risk transfer mechanism for fleets, enabling them to conduct business with reduced anxiety. Recently, however, captive insurance has emerged as a more appealing alternative.
During the TTSAO’s yearly conference in Brampton on February 29, a speaker highlighted the merits of this insurance model for some fleets.
“In the trucking sector, insurance often ranks as the second or third largest expense in your annual budget,” stated Jaqueline Caceres, president of BIS Risk Solutions. “If you can manage that expense, it can significantly impact many businesses.”
This self-insurance strategy allows companies to form their own insurance entities, known as captives, to cover their specific risks. There are various models for implementing this type of insurance.
Although transitioning to captive insurance is challenging, many businesses, particularly medium and large trucking companies, are considering it. Currently, however, most regions in Canada and the U.S. lack a regulatory framework for captives. Caceres notes that only British Columbia and Alberta have established such legislation in Canada.
Types of Captives
The trucking industry primarily utilizes pure and group captives, according to Caceres. Pure captives, or single-parent captives, are favored by larger companies with extensive fleets and revenues, allowing them to handle claims costs directly.
Is Captive Insurance Right for Your Fleet?
For fleets with about 30 to 50 vehicles or more, joining a group captive may be a financially sound decision, while smaller firms usually don’t generate sufficient premium volume to justify it.
Consider Your Challenges
When evaluating captive insurance, Caceres suggests that companies examine their specific challenges, including their performance in the broader insurance market, claims history, and interactions with insurers.
Advantages of Captive Insurance
Captive insurance offers firms greater control over costs, despite fluctuating external market conditions. They also gain control over claims management and the opportunity to keep profits from favorable performance.
Risks and Misunderstandings
Nonetheless, captives come with their own risks, including reliance on underperforming partners and navigating regulatory and tax complexities. Caceres cautions against misconceptions, emphasizing that captives are not universally cheaper than traditional insurance and are not vehicles for tax evasion.
