Call Us Today!

Captive Insurance Policy FAQs: How to Become Your Own Insurer

Captive Insurance

When most people consider commercial insurance, they think about general liability, commercial auto, and commercial property coverage. Few know much about captive insurance. But, even though it’s not as common as some other coverage types, a captive insurance policy has a lot to offer. Let’s discuss.


What is captive insurance?


A “captive insurer” is an insurance carrier owned and controlled by those it insures. So, if your company didn’t want to use a third-party insurer, it could insure itself by retaining some of its own risk. Therefore, it would become a “captive insurer.”


Groups of businesses can also band together to create a captive insurance agency. We often see nonprofit organizations, major corporations, and medium-sized businesses opt for this coverage.


Why would a company want a captive insurance policy?


As a captive insurer, a company can set its own rates and keep the overflow. For example, a company might set its annual premium at $300,000 but only file $100,000 in claims. So, it gets to keep $200,000 in untaxed earnings.


If properly organized, a captive insurance program can provide the following benefits.


  • Better cash flow
  • Better risk management
  • Unique coverage you can’t find from traditional insurers
  • Increased bargaining capabilities with traditional insurers
  • Income tax cash flow advantages


What are the cons of captive insurance?


A captive insurance policy can be a significant asset but has some disadvantages.


  • Expense—It costs a lot of money to form and operate a captive insurance program, and you need plenty of capital to cover the policies.
  • A risk of poor underwriting results


Are there different types of captive insurance companies?


Yes. There are three captive insurance categories.


  • Pure captive—entirely owned insurance carrier that usually insures its parent’s risk.


  • Group captive—insures the risk of its sponsoring associate and affiliates.


  • Rent-a-captive—the owner isn’t necessarily the insured. Instead, the owner fronts the capital and rents facility space to others.


Captive insurance can be a complicated subject. If you have any questions, contact an MTG agent today. We’re ready to help you begin a captive insurance program if you decide it’s right for your business.