An increasing number of construction companies have explored the option of a captive insurance company during the COVID-19 pandemic, according to CIC Services, a captive consulting firm.
CIC Services explained that the construction industry faces “numerous threats that can potentially disrupt or even bankrupt their business, or in other cases lead to revenue loss and layoffs”.
Stats from MarketsandMarket ‘COVID-19 impacts on the construction market by type, global forecast to 2021’, showed that the construction industry is expected to see a decline this year with an expected drop from $11.2 trillion in 2019 to $10.6 trillion in 2020.
Although the industry shows signs of recovery in 2021, “not all companies will make it”.
CIC Services stated that they have witnessed the trend of the construction industry turning to captives, as construction companies have made up a growing percentage of their client base.
Commenting on this trend, Randy Sadler, principal at CIC Services, said: “We went from having a small number of construction clients to construction companies making up our highest number of clients within an industry and that number continues to climb.”
He explained: “Construction companies are uniquely suited to own their own captive insurance company. Commercial insurance is often riddled with exclusions that can lead to claims not being paid. Captive insurance fills those gaps and addresses the complex, evolving risks that members of the construction industry face. It’s a robust strategy for companies that also creates a separate profit centre.”
According to Sadler, one of the most important benefits of captive insurance for construction companies is the ability to find a new profit centre in payment and performance bonds or in subcontractor default (SDI) insurance (or both).
However, Sadler noted that it’s too late to insure against COVID-19, but owning a captive insurance company still proves beneficial.
“Captives can replace commercial insurance, insure enterprise risks, insure warranties, insure bonds, insure employee benefits or healthcare or any combination of these. They also provide a stronger business model, improved risk management, improved cost control, insurance profits, asset protection, asset accumulation and receive advantageous tax treatment. It’s a no brainer,” he concluded.
