Officials from Helena, Montana, are reporting that an increasing number of businesses and organizations are forming their own insurance companies in an effort to manage costs. These impromptu coalitions are being called “captive” insurance companies. The specific objective of these companies is to finance or insure the risk of their parent groups.
Steve Matthews of the State Auditor’s Office says that the trend is to keep insurance premium taxes from leaving the state.
In 2010, Montana licensed 26 captive insurance companies, bringing the total number of such companies in the state to 67 – a record high. Missouri has the second highest number of licensed captives, coming in at 6 in 2010.
Captive insurance companies usually offer coverage for property and liability but not health.
Hospitals, private practice physicians and commercial trucking companies are some of the groups that have formed their own insurance companies. According to Matthews, these companies collected a total of $274 million in premiums in the last ten years. They are expected to pay little more than $600,000 in taxes on premiums collected last year.
Other states are showing interest in adopting legislature that would allow companies to form their own insurance subsidiaries. In 2010, South Carolina saw an increase in efforts to form captives. Six such companies are already slated to be launched in the coming year, as legislation begins to be implemented.
By forming captives, businesses, both big and small, and organizations are able to fine tune risk coverage to meet their specific needs while keeping the costs of coverage at a manageable level.