Survey: Majority use captive insurance pools, but do your research
Captive insurance pools are regularly used by real estate investment management firms, according to a NAREIM member survey. And there's one key piece of advice when considering utilizing the structure: do your research well and start small.
One NAREIM member asked peers for best practices in relation to using and implementing captive insurance pools, whereby the insurance risk of one investment vehicle is pooled, blended and distributed with the risk of other investment vehicles in the pool.
The survey showed that many firms are using captive pools, across property types and risk spectrum, with self-insurance limits ranging from $100,000 to upwards of $1.5 million.
While each firm had different policies relating to the allocation of potential dividends at the end of a year - including using the dividend to offset the insurance premium for the next year - there was a common theme to best practice advise for anyone considering the insurance pool: do your research.
Managers recommended hiring a sector-specific consultant to help you work through potential issues with captive pools, while others recommended doing research and setting up conversations with peers to understand uses and conflicts. The key advice for firms looking to captive insurance pools: "Start small and build on use."
NAREIM members often reach out to ask their peers about pressing concerns impacting their business. These member-generated surveys are critical tools to sharing best practices across the real estate investment management industry. By sharing how you handle key processes, the entire industry can learn gain valuable knowledge. All answers remain strictly anonymized - to both fellow members and NAREIM.