Amid a challenging insurance market, companies are on the lookout for creative solutions to bolster their financial resilience. One strategy that continues to gain traction is the creation of captive insurance companies. Could captives align with the distinct needs of your organization? Let’s take a closer look at the ins and outs, unraveling the complexities and uncovering the advantages of captives.

Captive insurance companies are entities formed to finance the risks of a parent group or groups. Captive insurance is a distinctive form of alternative risk transfer, offering organizations a unique avenue to manage and finance risks. There are four primary structures for captive insurers each with their own merits, these include single-parent captives, cell captives, risk-retention groups (RRGs), and group captives.

This alternative risk transfer mechanism has become increasingly popular among major corporations, nonprofit organizations, and medium-sized businesses. Unlike traditional insurance arrangements with third-party carriers, captives empower organizations to retain a portion of their risks by creating an in-house insurance company – the captive insurer. This strategic approach gives businesses more control over risk management, offering tailored solutions that align with their needs and risk profiles.¹

Rather than relying on third-party carriers, businesses with a diverse portfolio of risks may opt to retain some of their own risk. In such instances, organizations can form a dedicated insurance company known as a “captive insurer.” The jurisdiction where the captive is organized is termed its “domicile.”

Various industries have recognized the value captives bring to risk management. The top five sectors experiencing notable growth in captive premium adoption include²:

When structured appropriately, captives offer a myriad of advantages, including:

While captives represent a powerful risk management tool, their suitability depends on various factors. Consider the following key aspects:

Before diving into the world of captive insurance, it’s essential to conduct a thorough feasibility study. This involves digging into background information to understand the industry context, discussing financial implications, and projecting potential loss experiences.

A feasibility study acts as a compass, guiding organizations through the complexities of launching a captive insurance venture. From financial considerations to understanding qualitative factors, each step contributes to a well-rounded evaluation, empowering decision-makers with the insights needed to navigate the intricate landscape of captive insurance effectively.

In the face of a hardening insurance market, we understand the importance of tailored risk management solutions. At MJ, we’re committed to helping you navigate challenges and stay ahead of the curve. Grounded by data and analytics, we distill crucial insights to guide you through uncertainties, explore diverse options, accomplish your business objectives, and thrive. Our focus on more than just the solutions of today; we established processes to consistently unearth new strategies to align with your distinctive organizational goals as they evolve.

Ready to learn more about captive insurance and explore its potential for your organization?

Get in touch with us today, or take the next step by downloading our Executive Guide to Captive Insurance.