Medical malpractice insurance is essential for protecting a medical provider’s career and assets, but skyrocketing premiums or one-size-fits-all plans can leave practitioners worried about their bottom lines. To fix this problem, an increasing number of practitioners are turning to captive insurance companies, which let doctors create customized plans while protecting their assets and increasing their incomes.
How It Works
Instead of offering insurance plans to the general market, a captive insurance company offers coverage to specific individuals or business entities, typically its owners. Most doctors use captive insurance in conjunction with commercial plans, although they are not required to do so. A captive insurance company must be licensed and regulated in the same way as a commercial insurance company; however, the people paying the premiums can often profit from the success of their insurance company.
One of the largest benefits of captive insurance is that each customer can create a customized plan. Many commercial plans have substantial loopholes, which may leave individual practitioners or specialty practices who deal with high-risk patients uncovered for certain illnesses or injuries. These practitioners can use captive plans to fill in those holes without assuming significant financial risk. Captive insurance can also extend beyond medical malpractice and include employee lawsuits, environmental damage and unforeseen events.
Captive insurance companies can save money and even turn a profit for their owners. There is an up-front cost for this service, and it takes time for profits to appear. However, once the captive builds enough assets, owners can invest those assets and make money on them. Even if the company does not invest, the structure of a captive insurance company rewards doctors who practice carefully by allowing them to reclaim some of their premiums after they retire. In addition, captive insurance companies are typically tax exempt. However, if a claim exceeds the company’s ability to pay, the owners may have to pay out of pocket.
Is a Captive Right for You?
Anyone can create a captive insurance company, as long as the company protects against a legitimate risk. However, captive insurance is not suitable for every practitioner. Generally, it’s a good idea for a company to consider getting captive insurance if it has over a million dollars in assets. Captive insurance may make sense for smaller practices if there is an unusual level or type of risk that traditional malpractice insurance doesn’t cover.
Creating a captive insurance company is a complex process that requires some upfront expenses, but it can pay off significantly in the end. However, the greater rewards also come with greater risk, so consider your options carefully, and consult a specialist who can help you decide if captive insurance is right for your business.