The shared risk model is a “middle of the road” approach that rewards members for their performance but also protects members when a severe accident happens. This model is particularly useful for new members to captive insurance, as it reduces the likelihood of unexpected financial surprises.

Example 1- "I did well, my group did well."

In this scenario, the member performed exceptionally well, resulting in a 13% loss ratio.  the group also performed well, with a 22% loss ratio. There are no deficits or contributions to the deficit. All members are profiting.

Example 2- "I did poorly, my group did well."

In the second scenario Member A had a difficult year, with a $179,080 deficit. In the shared model other members of the group contribute to this deficit, reducing the severity of the losses. Member A's contribution to their deficit is $12,849 while other members contribute a small percentage of their surplus.

Reminder - Members can then assist each other by sharing information on how to accident in the future in community meetings and through "Never Again" case studies.  

Since CP is an organic and democratic organization, over time your board representatives can make changes to optimize the model to either share more or less risk based on performance.

Quota Share

We also have a quota share system in place, which means another reinsurer has joined to take a portion of the loss fund. One advantage of this is that it reduces capital requirements, but the downside is that it reduces the profit potential. Lower capital requirements can be beneficial for groups just starting out to lower the entry barrier. This is an feature that can also be adjusted through board votes and carrier negotiations over time.