Captive 101: The Basics Your Construction Company Should Know (Part 1)

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Have you heard the term insurance captive and wondered what it was or if one was right for your construction company? Let’s take a closer look at the basics of captives.

What is a captive?

A captive is a legal entity, licensed as an insurance company, to insure a proportion of its shareholders’ risks. To put it simply, it is an insurance company owned by the captive members (shareholders).

The captive members will accept a predetermined level of risk, and they will pay the associated premiums for the administration of the captive (fixed costs) to the captive insurer. The most common lines of business underwritten in a captive include:

• Property & Business Interruption
• Workers’ Compensation & Employers Liability
• Commercial General Liability
• Auto Liability
• Professional Liability

Captive structures can take many variations. Three of the most common ones are:

1. Single Parent / Pure Captives

As their name suggests, these captives are owned and operated by a single owner. These captives are best for companies with significant size and scale.

2. Group Captives

In group captives, the mix of companies that own the captive can be related by industry (Homogenous) or unrelated (Heterogeneous) representing different industries. It insures the individual risks of each member, as well as the catastrophic risk of the group.

3. Rent-a-Captives

This captive is owned by an outside organization (i.e. broker, reinsurer or insurer). It allows members to join an established captive for a fee without actually participating in the captive insurance company ownership or management.

When evaluating if a captive is best for your construction company, you must understand that it is a performance-based insurance product. More than likely you have addressed your insurance needs by purchasing a guaranteed cost program, also known as traditional insurance.

Next week, our blog will compare the differences between the two insurance products so you can determine what will work best for you. Still have questions on Captives or other insurance coverages? Download our Captive Benefits Flyer below! You can also give TSIB a call today at 201-267-7500.