Captive Feasibility
Why You Need It & What to Expect
by Jesse Olsen, SRS Director – Advisers
Captives can be an attractive, sometimes exotic, option to solve a risk management challenge or enhance an insurance program structure. There are a number of factors that should be evaluated before implementing. During the worst days of the 2008 Financial Crisis, Warren Buffett was famously quoted, “Beware of geeks bearing formulas.” So, too, should a prospective captive owner be suspicious of anyone who seems overeager to put a captive in place; claims a feasibility study is easy; bases an analysis heavily on assumptions; or provides a thin, templated feasibility report.
Every prospective captive owner should be given a bespoke evaluation of how much quantitative and qualitative benefit a captive could bring. A captive can vary widely in complexity. With the help of a knowledgeable specialist like SRS, prospective captive owners can evaluate the usefulness of a captive through a feasibility study. A good feasibility study will distill the complicated captive topic into an actionable decision document.
Objectivity is key. An experienced captive consultant can usually identify reasons a captive may not achieve the desired outcome or special considerations within a one-hour pre-feasibility conversation. A captive is not right for everyone, as evidenced by the fact SRS does not quote 40-50% of all feasibility inquiries we receive. We want to avoid clients spending time and money on a project that will clearly not result in a compelling business case. If that conversation is largely positive, determining how much better a captive might be than the status quo requires a full feasibility study.
There is a phrase uttered regularly in the captive industry: if you’ve seen one captive, you’ve seen one captive. It follows that feasibility studies should be customized for each circumstance. At SRS, we pride ourselves on our individualized approach to each feasibility engagement. Our experienced consultants help guide interested parties through the process so they can confidently determine whether a captive is right for them.