How Captive Insurance Works and Why It's Changing the Game
What is Captive Insurance?
Captive insurance is a smart, strategic way for businesses to take control of their insurance needs.
Instead of paying premiums to a commercial insurer, a business forms its own licensed insurance company - called a "captive" - to insure its own risks. This gives the business more control over coverage terms, claims handling, and how premium dollars are used. When losses are low, the business keeps the unused premiums, turning insurance from a sunk cost into a potential profit center.
Key Benefits
Captives offer a powerful combination of flexibility and transparency. They allow companies to design a coverage that fits their specific operations, improve cash flow through more efficient risk management, and potentially realize investment benefits along the way. For businesses with predictable risk and a long-term view, captive insurance can be a game-changer.
Types of Captives
Single Parent (Pure) Captive
A captive owned and controlled by one parent company, formed to insure only the risks of that company or its affiliates. It gives full control over underwriting, claims and investment decisions.
Group Captive
Formed and owned by multiple unrelated companies, usually within the same industry, to pool and insure their collective risks. Group captives allow smaller businesses to access captive benefits by sharing costs and risk.
Cell Captive
A flexible captive structure where multiple "cells" operate under one legal entity, each legally separated from the others. Businesses can "rent" a cell to avoid the cost of forming a standalone captive.
Risk Retention Group
A special type of group captive authorized under federal law to provide liability coverage across state lines for members in the same industry. RRG's are commonly used by healthcare, transportation, and education groups.
Rent A Captive
Allows companies to "rent" access to an existing captive structure, often through a cell captive, without having to own or manage it. Ideal for businesses looking to test captive benefits without full formation costs.