Captive Insurance

As the commercial market continues to harden and clients are pushed into placements that are not ideal, alternative risk solutions are becoming more appealing. 

It comes as no surprise that many companies today are facing challenges that may affect their bottom line. Implementing a captive insurance company not only allows for creative problem-solving but also provides the opportunity to accommodate rapidly changing coverage needs that exceed anything available commercially.  

The primary drivers for companies to consider a captive insurance company as part of their enterprise risk management program include the following: 

• Increased premiums and reduced capacity due to a hardening market. 
• Lack of control over risk management and claims handling. 
• Lack of availability of certain coverages in the traditional commercial insurance market. 
• Increased retentions. 

If your organization is facing any of these challenges, captive insurance may be a strong option.

What Is Captive Insurance? 

Put simply, captive insurance is an alternative insurance solution where a large organization or a group of organizations forms its own licensed insurance company, known as a captive insurance company or “captive.” 

Captive insurance allows businesses to insure or reinsure their own unique risks and is often used to manage complex or high-cost exposures more efficiently than traditional insurance. 

A more technical answer to “What is captive insurance?” is that a captive serves as a formalized loss retention mechanism designed to enhance the parent company’s risk management program and/or enhance the corporate bottom line. This approach requires long-term commitment to an alternative insurance vehicle. While captives are highly regulated entities that must operate as insurance companies, captive insurance can offer flexibility that is not always available through the traditional commercial insurance markets. 

To ensure compliance and success, captives are licensed in a domicile, administered and monitored by an infrastructure of controls, governance and expertise. 

How Does Captive Insurance Work?

Instead of relying solely on the traditional insurance market, a business or group of businesses forms and funds a captive insurance company to control and manage its own underwriting and unique risks directly. A captive can insure an entire organization or specific departments. 

By choosing an alternative insurance option and forming a captive, they control their policies, gain better control over costs, unique risks and improve overall stability. 

Is a Captive Right for you? 

With over 7,000 registered captives across 70 domiciles worldwide, no two captives are the same. Captive insurance as an alternative risk solution has become a useful strategy for large companies seeking greater control, flexibility and financial efficiency. 

Captive insurance provides organizations with several advantages over traditional insurance. Consider captive insurance when: 

• You need to insulate against market volatility. 
• You’re looking for long-term cost stability, improved cash flow and potential underwriting profits. 
• You face high or unpredictable insurance costs.  
• You need alternative insurance for unique risks, including hard-to-place and uninsurable exposures. 
• You want more say in how claims are handled and more control over risk management. 

Companies that are financially sound, with sufficient insurance premium and a focus on risk management, and that are driven by an interest in financing assumed risk positions, are ideal candidates to consider a captive.

Scenarios: Captive Insurance Examples

Benefits of Captive Ownership

NFP: A Captive Owner and Manager 

NFP, an Aon company, is a captive owner and licensed captive manager through our Risk and Insurance Strategy Collective (RISC). As a captive owner, we understand how alternative insurance solutions like captives can drive value. We offer services that span the entirety of the captive insurance process.  

Our RISC team works with clients to design, form and manage the right captive solution, helping you take control of your most complex risks. Our team will structure, implement, operate and service your captive in the most cost-effective way possible. In the preliminary stages of captive engagement, our experts work with actuaries and financial stakeholders to compile and analyze all relevant data. We examine premium rates, reserve adequacy, capitalization requirements, participation requirements and source of funding for the proposed captive insurer.

Our End-to-End Process 

Pre-feasibility and evaluation of current and proposed programs:

1. Formal feasibility studies. 
2. Captive formation and implementation. 
3. Business plan development. 
4. Ongoing captive management. 
5. Strategic review of existing captive insurance programs. 

Disclaimer: NFP Corp. and its subsidiaries do not provide legal or tax advice. Compliance, regulatory and related content is for general informational purposes and is not guaranteed to be accurate or complete. You should consult an attorney or tax professional regarding the application or potential implications of laws, regulations or policies to your specific circumstances. 

Insurance services provided by NFP Property & Casualty Services, Inc. (NFP P&C), a subsidiary of NFP Corp. In California, NFP P&C does business as NFP Property & Casualty Insurance Services, Inc. (License # 0F15715).