When the commercial insurance market is hard, captives start looking like the smartest room in the building.
A captive insurance company is a licensed insurer owned by the entity it insures. Instead of paying premiums to a commercial carrier and watching underwriting profit flow outward, a corporation retains that profit within the captive -- benefiting in years when losses are below expectations and building reserves for years when they are not.
The growth in single-parent and group captives over the past several years reflects both hard market frustration and improving access to captive feasibility analysis, domicile options, and program management services that make captive formation practical for companies below the Fortune 500.
Captive owners gain something beyond potential cost savings: granular data on their own loss experience that most commercial policy structures do not provide, enabling better risk management investment decisions.
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