With commercial insurance premiums rising and coverage terms tightening, many mid-sized companies are looking for better ways to manage risk. For business owners tired of market volatility and limited policy flexibility, captive insurance may be the strategic solution you've been searching for.
Captives give companies more control over their insurance spend, more insight into loss trends, and more freedom to design coverage around real-world exposures—not broad industry assumptions.
Let’s explore how captive insurance works, why it’s gaining traction across industries, and whether your business could benefit from this alternative approach to risk management.
A captive insurance company is a licensed insurance entity formed by a business (or group of businesses) to insure its own risks. Rather than paying premiums to a commercial insurer, the business pays premiums to its captive, which then pays claims and manages risk.
Captives come in several structures depending on your goals:
Captives are a proactive approach to managing your company's risk and insurance strategy. Here's why so many mid-market firms are considering the move:
In the traditional insurance market, premiums are influenced by market cycles, insurer profitability goals, and the pooling of risk across unrelated businesses. This often results in unpredictable and rising costs, even for companies with excellent loss histories.
With a captive, your business sets its own underwriting criteria and pricing based on actual risk exposure and historical performance. This allows for:
Example: A manufacturing firm with a strong safety record may find that its premiums are inflated due to industry-wide losses. A captive allows it to break free from that pricing model.
Traditional insurance premiums are a sunk cost—once paid, they’re gone, regardless of whether you file a claim. Captives, on the other hand, allow businesses to retain and invest unused premium dollars.
Benefits include:
Example: A transportation company with low annual claims can accumulate a surplus in its captive, which can be reinvested into fleet upgrades or safety initiatives.
Commercial insurers often offer standardized policies that may not align with your business's unique risk profile. Captives provide the flexibility to design coverage tailored to your specific needs.
This includes:
Example: A large agribusiness faces unique risks related to crop contamination and equipment breakdown – risks that are either excluded or overpriced in the traditional market. Through its captive, the company designs custom policies that address these exposures directly, ensuring comprehensive protection and operational continuity during critical harvest seasons.
In a captive model, your business has direct oversight of claims management. This can lead to faster resolution, better communication, and more strategic decision-making.
Advantages include:
Example: A construction firm can use its captive to manage workers’ compensation claims more proactively, reducing litigation and improving return-to-work outcomes.
If claims are well-managed and reserves are appropriately invested, captives can generate surplus income. Unlike traditional insurance, where the carrier retains profits, captive profits remain within the business.
This surplus can be used to:
Example: A multi-location outpatient care network uses a captive to cover professional liability and cyber risks. Due to strong clinical governance and cybersecurity protocols, claims remain low. Over time, the captive generates surplus capital, which is reinvested into telehealth infrastructure and staff training to further reduce risk and enhance patient care.
Captives provide access to granular, real-time data on claims, exposures, and trends. This level of insight is often unavailable through traditional insurers.
With better data, businesses can:
Example: An independent power producer operating wind and solar farms uses its captive to insure property damage and business interruption. Through the captive's data analytics, the company identifies that turbine failures are more frequent in coastal regions due to salt corrosion. This insight leads to a targeted maintenance and materials upgrade program, reducing downtime and improving the reliability of energy output across its portfolio.
Captives aren’t for every business. But they can be a wise choice for companies that meet the following criteria:
If that sounds like your business, a captive may offer long-term value that traditional insurance simply can’t match.
Captives do come with operational and regulatory responsibilities. It’s important to weigh the benefits against:
Captive insurance provides business leaders with more control, clarity, and value from their insurance expenditures. It's not just about lowering costs; it’s about building a stronger foundation for risk financing and business resilience.
At AssuredPartners, our Captives team specializes in helping mid-market companies explore, launch, and manage captive solutions. From initial feasibility studies to full formation and ongoing management, we guide you through every step of the process.
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