Important Things You Should Know About Captive Insurance


Insurance captives and group captives are subsidiary companies wholly owned by a company or collection of companies to provide risk-mitigation services. This can reduce the costs of insurance for many companies, especially when industry-specific risks are difficult to insure. Before you start a captive, it is important to understand some key principles such as how these companies compare to traditional insurance providers and what to expect in the operation of one.


Traditional insurance involves signing a contract with a company where you provide underwriting documentation and pay premiums in exchange for the company repaying losses under specific circumstances. With captive insurance, you are doing more than just signing a check every month, you can see all the components of your premiums and play a part in things like pricing and delivery. Alternative insurance options like captives are not in direct competition with leading insurance companies, but rather, captives work directly with other providers to cover big losses while handling the smaller ones themselves.


The structure and operation of a captive should be done with help and advice from industry leaders to give you the most benefit. For instance, if you structure your captive so that the funds you hold in reserve to cover losses are insurance premiums instead of retentions, then they can be deducted on your business taxes. You will also want to consider whether to set up your captive within the US or outside of it depending on what is the best financial location and which regulations are the most beneficial.

Insurance through a group captive can save you money on premiums and ensure that you have more say over the types of coverage you have. Before deciding on joining or creating a captive, however, it is a good idea to know how they compare to other insurance options and how they are structured and operated. Getting the help of a consultant or manager with experience in captives to guide you through the process can yield you the most benefit from the process.