Final answer:
Captive insurance is when a company sets up its own insurance subsidiary to provide coverage to its own risks or the risks of its parent company.
Step-by-step explanation:
Phoenix Co., which provides insurance coverage to its parent, is an example of:
b) Captive insurance
Captive insurance refers to a subsidiary company created by a parent company to provide insurance coverage for the parent and possibly other affiliates within the corporate group. In this scenario, Phoenix Co. operates as a captive insurer, serving the insurance needs of its parent company. This approach allows the parent to have more control over its insurance program, customize coverage to specific needs, and potentially reduce overall insurance costs.
Captive insurers like Phoenix Co. can underwrite the risks of their parent and affiliated companies, retaining a portion of the risk and reinsuring the remainder in the commercial market if needed. This strategy provides the parent with a direct financial interest in the captive, aligning risk management with the broader corporate goals.
Unlike traditional insurance companies, captives are closely integrated into the risk management and financial structure of their parent organizations, offering tailored solutions and contributing to a more efficient and flexible risk management strategy.