A company interested in improving cash flow should consider meeting its insurance needs through which type of insurance organization?

A company interested in improving cash flow should consider meeting its insurance needs through which type of insurance organization?

• A. Fraternal benefit societies
• B. Captive insurers (correct)
• C. Mutual insurers
• D. Stock insurers

Answer: (B)

Captive insurers are insurance companies created by a single company (or a group of related companies) to insure their own risks. By using a captive, the company pays premiums to an entity it controls rather than to an external insurer. Those premium dollars stay within the corporate group, which can improve cash flow because funds are retained internally, can be invested inside the group, and are available to fund losses as they arise. This arrangement also gives the company more control over coverage, deductibles, and claims handling, potentially reducing the overall cost of risk over time. External fraternal, mutual, or stock insurers don’t offer this same internal cash-flow dynamic tailored to a single company’s risk financing needs.

Captive insurers are insurance companies created by a single company (or a group of related companies) to insure their own risks. By using a captive, the company pays premiums to an entity it controls rather than to an external insurer. Those premium dollars stay within the corporate group, which can improve cash flow because funds are retained internally, can be invested inside the group, and are available to fund losses as they arise. This arrangement also gives the company more control over coverage, deductibles, and claims handling, potentially reducing the overall cost of risk over time. External fraternal, mutual, or stock insurers don’t offer this same internal cash-flow dynamic tailored to a single company’s risk financing needs.