Traditional insurance products aren’t always a good fit, especially if your company faces high premiums but historical losses have been low. Maybe you want to manage your cost of risk more directly or address an especially tough commercial insurance market for your industry. Captive insurance solutions provide a powerful long-term risk financing strategy to enhance financial resilience and drive sustainable growth.
WHAT IS CAPTIVE INSURANCE?
The primary difference between traditional insurance and a captive is who assumes the risk. In traditional insurance, paying a fixed fee transfers risk to a commercial insurer.
Captive insurance can offer typical and unique coverages, from employee benefits, property and casualty, and medical stop-loss to environmental liability and cybersecurity, and transfers risk to a dedicated insurance subsidiary formed by one or a group of companies. Unused premium funds are refunded.
As an alternative to traditional insurance, captive insurance offers greater control through ownership and transparency. These solutions typically save companies money, although they have a high set-up cost and depend on the participants to cover losses. Captives are different from self-insurance, which depends on large cash reserves instead of a third-party insurer or subsidiary.
BENEFITS OF A CAPTIVE
Captive insurance gives businesses more influence over claims outcomes, greater transparency into data for improved decision-making, and more control over the partners they work with.
- Shared Risk and Stability: Captive structures help employers reduce volatility by distributing risk across a larger population, providing protection from catastrophic claims while creating greater long-term predictability.
- Greater Visibility and Control: Captive members gain access to benchmarking data and insights that help identify emerging risks earlier and prioritize interventions more strategically. They have direct access to wholesale reinsurance markets and flexibility in funding and underwriting.
- Better Decision-Making: The most valuable benefit may not be risk sharing but visibility. Organizations cannot effectively manage costs they cannot see.
Because of greater visibility and ownership, a captive solution helps you identify what’s working faster, benchmark across populations, and scale successful strategies more quickly.
IS A CAPTIVE RIGHT FOR YOUR BUSINESS?
Organizations looking for a more proactive approach to risk management may benefit from evaluating whether a captive could support their goals. From nonprofits to Fortune 500 companies, organizations of many sizes and sectors rely on captives when they’re ready for a customized risk financing solution that enables greater ownership, transparency, and control over costs.
Organizations with a good loss record, strong risk management practices, and hard-to-place risk should be among the first to look further into captives.
HOW MJ HELPS BUSINESSES BUILD CAPTIVE STRATEGIES
A captive solution isn’t right for ever business, but it’s worth looking into your options. An MJ captive feasibility assessment can help organizations:
- Understand whether they meet the profile of a successful captive participant
- Evaluate historical claims performance and risk characteristics
- Benchmark against current captive participants
- Quantify potential financial opportunities and risks
- Identify strategies to improve long-term healthcare cost predictability
TYPES OF CAPTIVE INSURANCE PROGRAMS
Within the world of captive insurance solutions, you have options for what and how you pursue the benefits of this risk management strategy.
SINGLE CELL CAPTIVES
Establishing a single cell captive can save you money and protect you against risks that are excluded or otherwise not covered by your primary insurance. While the single cell captive fills the gaps in your existing coverage, it can also help to finance some of the costs associated with extending that coverage.
GROUP CAPTIVES
A group captive is owned by several companies who share similar risks or business interests. These companies may be from nearly any industry, and their group captives offer you the opportunity to earn back a portion of your premium and learn from other companies in your industry or with similar insurance needs.
EMPLOYEE BENEFITS CAPTIVES
Healthcare coverage is a top cost for any organization. As organizations across the market grapple with growing specialty drug utilization, increasing cancer claims, rising musculoskeletal costs, and the rapid adoption of GLP-1 therapies, traditional approaches to healthcare management are becoming less effective. An employee benefits captive is a great alternative, limiting your exposure and giving you access to analytics that can help control costs.
Frequently Asked Questions
How does a captive insurance company work?
When business band together to form a captive, they create a captive insurance company, which owns the risk and acts as self-insurance but isn’t licensed or authorized to write policies. A separate fronting insurance issues the policy and provides legal compliance.
Which companies qualify for a captive?
Most companies can opt for captive insurance, but captive solutions are most suited to those organizations that pay high annual premiums despite having a low loss ratio or otherwise struggle to find adequate coverage through traditional insurers.
How much can captive insurance save?
A lot. Or a little. Its structure gives companies the ownership and insight they need to carefully manage their risk in ways that bring long-term cost savings. Because unused premium money falls back into the control of participants, savings can come from strong safety, wellbeing, and other programs that reduce risk.
What are the risks of entering a captive?
Captive participants are on the hook for funding their own losses, so if you see a spike in claims, you’ll be responsible for covering them. A captive can carry greater risk than a third-party insurer. Layering in stop-loss reinsurance to cap out-of-pocket exposure reduces that risk.
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Think a captive solution is right for your business? Reach out to us today to get started.
