Self-Insurance Tool-American Fraud Essay

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Is Choosing a Captive Right for Your Client?

Captives, the self-insurance tool, were introduced in the early 1900s but are still largely viewed as a tax evasion tool for companies and individuals because there are so many ways for fraud to occur. Indeed, for the past three years, captives have been included on the IRS’s annual list of Dirty Dozen Tax Scams. The chief concern of the IRS is that captives are being used solely for their tax benefits and not for risk management reasons. However, more than 90 percent of Fortune 1000 companies use captives as a risk management strategy, and a growing number of small to mid-size companies are adopting the use of captives (referred to as micro-captives) as well.

With the increase in captive use, …show more content…

Some examples include catastrophic coverage such as earthquake & flood insurance, deductible buydown or reimbursement programs for large or even routine fire deductibles, cyber risks, workers’ compensation retention buydown programs, excess D&O, terrorism, credit or bad-debt, and more.

● Risk management – Captives offer the parent company a more sophisticated toolset with which to manage their enterprise risk by utilizing the captive in conjunction with the commercial insurance marketplace. This provides an opportunity to insure against liabilities that may be generally uninsurable or excessively priced but also to strategically retain certain risks via the captive to improve attachment points and evaluate risk financing alternatives.

● Control – One of the major perks of operating a captive for your own company is the control you’re given. This gives the company an active role in the insurance aspect of their business, something that is generally out of their hands. Captives also give the parent company greater control of

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