It has been observed that the so-called “War Chest” strategy is basically a billion dollar industry, but there are very few corporate stalwarts that have actually been able to derive benefits from this concept.
However, few of the business majors in the United States have used this strategy to become world leaders now. Regardless of whether it is a small sized or medium sized company, a business entity can take advantage of this strategy. Let us delve deeper about the concept and the strategies in the following paragraphs.
War Chest Strategy
Experts have revealed that few of the largest companies like Microsoft and Apple also operate in the insurance business. However, you may not have come across advertisements that promote their insurance business.
This is because they build so-called private insurance company that is referred to “captive” and this is usually done so that they can cover their own risk. Most of the business stalwarts make use of this concept in which billions are earned in profits through “captive structures”.
But unlike a common misconception, this type of insurance cover is not just meant only for the bigger and well-known companies. There are smaller companies that can avail the benefit of this concept too may be on a smaller scale. The concept is basically to keep aside cash for the rainy day.
Captive Insurance Company – What Is It?
A captive is basically an insurance company that will play the same role as any other insurance company of issuing policies, collecting premiums, and compensating for claims.
The only difference is that unlike the common insurance policies that are issued to the common man or general public, in this case, the insurance company will issue a policy or offer coverage only to the business that has created the captive.
Conventional or traditional insurance companies usually do not cover all accidents in case of businesses. And it won’t be wrong to say that businesses are subjected to a lot of risks. As such, a business can create the captive structure to cover its own risks that can amount to several hundred thousands of dollars.
Experts are of the opinion that smaller companies can opt for not just small business insurance policies but also captive insurance and this type of insurance will be particularly beneficial for small and mid-sized insurance companies.
Captive insurance is particularly great for the companies or business organizations that are “privately held”. This is because a lot of risks are involved in such businesses. In fact, some of the risks that can be covered in captive insurance policies in case of privately held businesses include the following:
- Breach of data
- Product warranties
- Breakdown in equipment
- Cyber risks
- Loss of employees
- Loss of customers
- Infringement in copyright issues
- Regulatory anomalies
In fact, the above-mentioned incidents can be legally insured. So, the concept of War Chest is that whenever a company is insuring against the aforementioned incidents, it is indirectly creating a “war chest” of cash so that it can wriggle out of the tight situation. This can be better understood with the help of an example.
It is a well-known fact that any lawsuit can drain off a company of its resources and cash. However, if it has the protection of captive insurance in the form of war chest, it can be bailed out from the lawsuit as far as finances are concerned.
As such, captive insurance is seen as one of the best ways to strengthen the management of risks that is involved whenever a company is locked in a legal battle or faces any other type of risk that ruins its reputation or depletes it of its financial resources.