Has anyone tried Captive Insurance

[Ed Neuhaus]

The other day I heard a guy talking about captive insurance companies.  Basically that is a company that insures the company it is owned by.  So for an Example:

You own 10 rental homes that cost you $600/year to insure each.  You start a new company to insure those homes.  The rental property company pays $6,000/year to the insurance company just as before, but now you own both companies.  So your insurance company has $6,000 and it takes some of that money and buys "reinsurance" against excessive loss. They then take the rest of the money and invest into something like the stock market, and pays the owners a management fee.  If you have a claim at the end of the year then you pay yourself back, if not you get to keep the money and reinvest it again next year. 

The best part is you can write the policy to cover exactly what you want it to and for how much.  You can cover dogs if you want, or just the outstanding balances on the mortgages and not rebuild cost if the lender will let you.  How you write the policy it totally up to you.  

So has anyone tired this?

[Jason Bott]

@Ed Neuhaus 

This is done, but usually on a much larger scale.  You usually need a minimum of $250k-$500k to fund the program.  This is rarely done in the Property insurance market as the rates are so low in the standard market. 

This is more common with high risk products or operations.  Think of a large trucking firm with 500 trucks @ $2,000 a piece.  It makes sense for them to form this captive, bring an additional Risk manager to manage the program and an extra safety guy/girl to mange the risk.  If done right, it can be both profitable and a competitive edge in the market place keeping cost down.