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As a contractor, you may be wondering if a captive is right for you, as they have recently been gaining in popularity. However, captives are not a new invention and were created in 1962.
What is a Captive?
A captive insurance is an organization where the insurance company is a subsidiary owned by those whom it insures.
There are three main categories of captives:
- Pure Captives
Are when companies are wholly-owned and managed solely by and benefit for the parent organization.
- Group Captives
Are organized to serve a group of companies (or individuals) with similar risk profiles (ex. Association Captives and Risk Retention Groups).
- Third-Party Captives
In addition to underwriting the parent company’s risk, this captive also provides coverages to third-party entities.
Is a Captive an Insurance Company?
No, a captive is different from an insurance company.
Insurance companies are owned and controlled by the policy holders (mutual insurance companies) or the stockholders (stock insurance companies), and their votes often are used to decide which course of action the company should pursue.
What is the goal of a captive?
The goal of the captive is to insure the risks of the owners, who are the insureds, so that they may benefit from the underwriting profits collected. Once established, the captive operates like a traditional insurance company by issuing policies, collecting premiums, and paying claims. Captives do not offer insurance to the public, and they are regulated by the government (usually in the state where the captive is domiciled).
Even though a captive insurance is not for everyone, there are many advantages to forming or joining a captive. It’s important to perform your due diligence and work with your Broker to see if it’s a right fit for you. A cost-benefit analysis should be undertaken to evaluate your rewards of being in a captive vs. the needed resources to establish and maintain the captive. If you are considering joining a captive or looking for more information about it, reach out to TSIB and speak with one of our Captive Specialists.
TSIB’s Risk Consultants are currently servicing the following locations:
East Coast: New York City, NY; Bergen County, NJ; Fairfield County, CT; Philadelphia, PA
Texas: Austin, San Antonio, Houston, Dallas
California: Orange County, Los Angeles County, Riverside County, San Bernardino County, San Diego County