As an agency captive owner I am often asked why, in 1996, I took
the plunge and formed an agency captive. The answer was, and
remains, simple. I spent my career building a book of very
profitable business for many carriers- developing niche markets and
increasing commissions earned by each carrier with whom I
partnered. However, it did not take very long to realize
regardless of commission or limited profit sharing offered by the
carriers, my business was earning them a considerable amount more
for the carriers than for me.
To me, the decision to form my own captive seemed clear
cut. As agents we know that the best investment we can make
is in ourselves. That was the greatest hurdle to overcome
when making the decision to set up my first captive. I knew I
wanted to take risk in the business I was writing as an agent, but
the costs of starting and fully collateralizing a captive were
onerous and complicated.
The most important part of my decision was to find a good
captive partner who could help me through the formation
process. Learning the options for the amount of risk to take,
where to domicile, how to most efficiently invest the capital
needed to collateralize my risk position, and what business to move
to the captive were all important decisions I had to make at the
onset of captive development.
Timing is also very important in captive formation. Taking
advantage of favorable market conditions can exponentially increase
the profitability of a captive. It can take up to eighteen
months to form and develop a new captive. The common
understanding is that captives can provide rate stability in a hard
market and flexibility in a soft one. To make the most of a
current prevailing notion that prices will be hardening in the
coming year, the captive formation process should begin now.
Forming an agency captive was one of the smartest decisions I
ever made as a broker and business owner. It is certainly not
a short-term solution for an increase in revenue but for
innovative, driven agencies, captives provide a unique opportunity
to profit from and grow your business in a controlled
environment.
Have questions about what an agency captive can do for
you?
Contact us today!