Many small businesses find that traditional commercial insurance meets their needs, but medium and large-size businesses often invest too much for too little. 

    It's Nice to Know You Have Options

    There are choices available outside of the framework of traditional insurance policies from existing providers. 

    A captive can make more customized coverage available and financially rewards companies for being proactive. Established businesses that have high insurance premiums may likely find this an advantageous alternative to traditional insurance.

    Curious to know more?

    This page answers questions people have about captives:

    1. What is a captive?

    2. What are the different types of captives?

    3. Why do businesses use a captive?

    4. Advantages of a captive

    5. P & C Captives

    6. Healthcare Captives

    7. How to know if a captive is a right fit for your organization. 


    Options for insurance

    What is a Captive?

    A captive insurer is a vehicle for taking more control of risk and is an alternative way to finance or fund the cost of it. Employers use this alternative for setting up their own insurance company rather than purchasing a traditional policy from an existing provider. While some larger employers may establish an insurance company on their own, small and medium size employers may join together to form an insurance company as a group. Although this strategy is not for everyone, some employers can reap significant benefits from being part of a captive.

    They are called “captives” because they are created primarily to insure the risks of the companies and related parties who own them, but for all intents and purposes, once established, they look like, operate like, and are regulated like any other insurance company.


    Types of Captives

    Single Parent Captive

    Single parent captive insurance has one business wholly owning the insuring subsidiary. The business that’s being insured sets up, owns and runs the subsidiary, and the subsidiary hence has a single parent company.

    Businesses that use single-parent captives tend to be large corporations, often having insurance premiums of $1 million or more (although sometimes a little less). These corporations could use a captive to insure the entire parent business or part of the parent business’s affiliates.

    Group Captive

    Group captive insurance has multiple businesses that own the insuring subsidiary, so the subsidiary hence has a group of parent businesses. The parent businesses are non-related entities, and they own and control the subsidiary together.

    Owning an insuring subsidiary together makes group captives much more feasible at lesser premium sizes than single-parent captives. While businesses with premiums of $1 million+ often utilize group captives, this solution can be feasible for companies with total premiums as small as $125,000 annually.

    An insurance professional who specializes in property and casualty captive insurance can help businesses with higher premiums determine whether a group or single parent captive is more suitable for their situation.

    Businesses that participate in group captives can use their insuring subsidiary to insure all or part of their parent business.

    Homogenous Group Captives vs. Heterogenous Group Captives

    Group property and casualty captive insurance can be further defined by the types of businesses that own the insuring subsidiary.

    In a homogenous group captive, the insuring subsidiary is owned by businesses that are in the same industry. A homogenous captive is useful when an industry requires particular and specialized coverage, as the program can be tailored to fit that industry’s specific needs.

    In heterogeneous group captives, the insuring subsidiary is owned by businesses that are in different industries. A heterogeneous captive is useful for spreading risk across various industries and/or managing industry-related insurance cycles.


    Why Do Businesses Use Captives?

    Captive insurance is sometimes used by businesses with high and/or unique risk profiles. The insurance structure is a solution when coverage is either unavailable or unaffordable through the commercial marketplace of traditional insurance policies. Through a captive, the corporation has the ability to professionally and tax efficiently build up funding within their organization to enable themselves to retain and manage certain risks within their company rather than paying an outside insurance company to do so. Companies appreciate the control that a captive gives them over their funding. 

    Depending on the specifics of their situation, businesses might use a captive to:

    • Secure highly specialized coverages for unique risks not covered in the traditional marketplace such as supply chain interruption, product recall expense, etc.

    • Reduce insurance-associated costs by setting aside premiums to cover deductible and retention risks they do incur.

    • The option to retain and shore up profits and equity capital inside the owned captive rather than spending it on an outside insurer.

    • Potential tax benefits for retaining risks within the company’s captive.

    • More professional management of assets.

    • Ensuring proper funding for any retained risks or claims.



    Advantages of Group Captives

    1. Greater Control

    Businesses have more control over their insurance coverages because they can better select and set up coverages according to their needs. Even in group captives where multiple businesses negotiate coverage terms, specialized protections are still available (especially through homogenous group captives).

    2. Business-Specific Premiums

    The premiums assessed for group captive insurance are based on a business’s particular risk profile and claims history. This is distinct from traditional commercial insurance, which is also largely influenced by industry trends. Limiting premium calculations to an individual business’s profile and history is fairer, and protects businesses from undue market trends that raise rates.

    3. Cost Reduction

    The business structure of group captives enables businesses to control their total cost of risk and their risk financing. The total cost of risk is decreased when businesses reduce the number of claims, as premiums are heavily based on claims and subsidiaries retain any profits from unpaid premiums. Risk financing is more manageable because the insurance is so customizable.

    4. Heightened Safety

    The financial incentive to reduce rates causes businesses to have a heightened awareness of safety. One survey found that companies with captive insurance experienced 48% fewer fatalities and 22% fewer worker’s compensation claims compared to their traditionally insured counterparts. Employers and employees alike benefit when accident rates are reduced.

    5. Transparency

    Owning and operating a subsidiary gives businesses comprehensive transparency of how their insurance premiums are being managed. Premiums, overhead, claims payments, and other expenses are all readily available for businesses to review.

    6. Increased Profits

    Businesses can benefit from underwriting profits and investment income that their subsidiary generates. This combined with cost savings may make captive insurance quite financially beneficial.


    Group Captive vs. Self Insurance

    A group captive is a form of self-insurance, but it’s different from the simple model of saving up for when something happens. The business structure of a group captive may afford tax advantages that aren’t available when merely saving.


    Group Captive vs. Single Parent Captive

    Of course, both group captives and single parent captives provide the benefits noted above. The advantage of group captives is that these benefits become available for established small and medium businesses, and aren’t limited to only large corporations.


    2 Types of Group Captives

    1. Property and Casualty Captive (P&C Captive)

    The specific coverages being provided are created when the subsidiary is set up. Coverages can include any or all of the common protections that would be expected in a traditional commercial insurance policy. Coverages often also include specialized protections, which may be structured as distinct uncommon coverages or as particular terms within more common coverages.=

    Some highlights of coverages that would be included in a fairly typical group P&C captive are:

    General Liability CoveragePutting-a-property-and-casualty-captive-to-work-for-your-business-ebook

    Insure against common “slip and fall” accidents, defamation lawsuits, and false advertising claims.

    Auto Liability Coverage

    Insures against vehicle accidents in which employee drivers are responsible for causing injuries and/or property damage.

    Auto Physical Damage Coverage

    Insures against damage that company-owned vehicles sustain during collisions or non-collision accidents.

    Workers Compensation Coverage

    Insures against workplace injuries and illnesses that employees sustain while on the job.

    Specialized Coverages

    This can insure against a range of particular risks depending on a business’s situation and coverage terms.

    When is a Group P&C Captive a Good Fit?

    Group captive insurance should be evaluated on a case-by-case basis, as every business’s particular risk profile, premiums and coverage needs should be considered on their own. In general, however, businesses are good candidates for a group captive if the business:

    • Pays combined property and casualty insurance premiums of at least $125,000, which includes general liability, commercial auto, and workers' compensation premiums.

    • Wants to reduce insurance costs and better manage risk financing through an alternative solution.

    • Prefers insurance premiums to be based on the business’s actual losses rather than industry averages (or has losses below the industry average).

    • Has a 5-year loss history of incurred claims consistently being below 50% of the premiums paid (across all coverages).

    • Commits to taking proactive measures that will improve overall safety and reduce accident rates.

    In short, businesses that are financially stable and consistently pay high insurance premiums relative to the claims that are paid out by their insurer should consider whether group property and casualty captive insurance is right for them. This evaluation is somewhat complex, so businesses ought to work closely with a knowledgeable insurance professional who specializes in captives when making this evaluation. Businesses should look at joining a group captive as a long-term decision, as entering and leaving a captive is more complicated than simply changing insurance companies.


    2. Healthcare Captive

    One of the biggest challenges in paying for healthcare is that there are no regulations on what doctors, hospitals, and other providers can bill for their services. In fact, some for-profit hospitals may charge insurance companies more than 2.5 times the amount Medicare will cover for their services. Studies indicate that, in some cases within the standard insurance company environment, those rates may even be a lot higher. It’s important for companies to know that alternative options are available.

    Group health captives offer several advantages that make them a wise choice for employers looking to take control of their healthcare coverage and spending. Some of these advantages include:

    1. Access to Turnkey Coverage SolutionsNew call-to-action

    Group health insurance captives don’t require you to start from scratch. In fact, joining a group health insurance captive gives you immediate access to established programs and solutions your company can use to improve healthcare immediately. 

    2. Relationship with Top Tier Carriers

    Choosing a group health insurance captive does not mean you will be receiving inferior coverage or benefits. In fact, for many companies, joining a group captive improves access to coverage. With a group health insurance captive, you will have a direct risk relationship with re-insurance partners who are typically very highly rated and stable partners. 

    3. Experience and Flexibility

    When you join a group health insurance captive, you can take advantage of all the knowledge and experience of the other members. You will also enjoy greater flexibility than you could ever achieve with traditional insurance options.

    4. Reduced Middleman Expenses

    A group health captive allows your organization to purchase coverage wholesale, rather than retail. This means you can reduce some of the overhead expenses by cutting out the middleman and making purchases directly. 

    5. Dedicated Program Services and Support Team

    You may worry that joining a group health insurance captive would leave you without the support you need. However, a good quality group captive claims administrator, and agency partner are all there to provide a dedicated support team, as well as other services you need to manage your organization’s healthcare insurance successfully. 

    6. Help with Risk Management

    Group health insurance captives offer their members customized risk management assistance, as well as access to leading industry strategies that can be used to improve how you choose to manage this area of corporate risk

    Who Should Consider a Healthcare Captive?

    A healthcare captive is not the right choice for every organization. However, you may benefit if:

    • Your company has at least 50 or more employees who are eligible to receive health benefits.

    • You have a forward-thinking management team capable of handling an “outside-the-box” health insurance solution.

    • You are willing to maintain open communication with employees about healthcare expenses.

    • Your company is willing to implement robust health and wellness programs to improve the overall health of employees and reduce costs.

    • You are financially stable enough to accept a portion of the health program’s risk.

    Could a healthcare captive be the right fit for your company? Take our quiz below to find out.


    Should Your Organization Be in a Captive?

    The answer for most companies is maybe.

    Whether you should join a captive depends on many different factors, including your risk perspective and your goals. To decide whether you should pursue this option, you need to have a clear understanding of where your company is currently and where you hope to go in the future.

    The decision to join a captive is based on a careful evaluation of what’s right for your organization. If, in fact, a group captive makes sense as part of your long-term strategy, then it may be a fit. However, there may be several other options you should consider before ultimately coming to the conclusion that you want to join a group captive.

    quiz to find out if a healthcare captive is a fit for your business


    Am I a Candidate for a Healthcare Captive? [Quiz]

    Captives are not for everybody, but for the right businesses, they can be a tremendous asset as an alternative to traditional options in the marketplace. 

    This quick questionnaire will help determine your company's level of readiness for participation in a captive. If we determine you aren't quite ready, it can serve as a guide to help you get started putting strategies in place so that you can be ready in the future.

    Simply submit your answers on this form. One of our experts on captives will be in touch to discuss the option in more detail and help you explore whether or not it is a fit for your organization.



    The Winter-Dent Difference

    Winter-Dent has all the resources to evaluate your current position and help you structure a program that’s right for you. We will walk you through the process every step of the way to make sure you don’t face any unwanted surprises. 

    Our ultimate goal is to help your company succeed with whatever health insurance strategy is chosen. How we do that is a process called 4Sight that is revolutionizing the risk management industry. It's what sets us apart - something we call the Winter-Dent Difference.

    Winter-Dent is an expert on captives. We understand how they work, the advantages they provide, and the drawbacks our clients may face when they select this option. Whatever your final decision may be with regard to your company’s healthcare strategy, we want you to be aware of all of your options and understand how each possible decision will affect your company and your employees, both today and in the future. We are committed to bringing the best options, resources, and information to the table so that you can minimize your risk and maximize your control.