Question

1)

a) What are the reasons for creating a captive insurer?

b) What is the difference between a single parent captive and a group captive?

2)

Kind Sicherheit is a manufacturer of childcare safety products, primarily car seats and strollers. The products are sold directly to independent retailers in Europe. The company’s risk manager knows that the company could be sued if a car seat or a stroller is defective, and someone is injured. Because the cost of products liability insurance has increased, the risk manager is considering other techniques to treat the company’s loss exposure.

Name at least three major risk-control techniques that Kind Sicherheit can apply for reducing the frequency or severity of losses due to potential product defects. Describe specific actions using these techniques that may be helpful in dealing with the company’s products liability exposure.

Answer 1

1. a. Reasons for creating a captive insurer are:

a) To enable them to manage their cash flow in a better way
b) To make them ready to avail a type of special coverage that is not available anywhere.
c) To make them ready to avail a broader coverage than insurance companies will provide.
d) To enable them to get a stable insurance price
e) To protect them from market risks

b. A single parent captive, also known as pure captive, is an insurance subsidiary that cover the loss of its parent company. A single parent captive allows an organization to check its possible risks and submit efficient claims management to itself and its subsidiaries. In single parent captives there is only one owner.

A group captive is a captive that is possessed by a number of different main companies belonging to the same industry. In a group captive there are many owners.