Estimated reading time: 5 minutes
Key takeaways
- Captive insurance empowers companies with strong loss histories to take control of their risk management strategy.
- Strong candidates for group captives often exhibit good safety records, consistent investments in risk management, and predictable operations.
- Marshall+Sterling offers expert support for evaluating and establishing captives, with a focus on long-term value.
Most high-performing companies still pay premiums based on industry averages rather than their own loss history. Year after year, businesses with strong safety records and minimal claims still see their insurance costs rise because others in their industry classification had a bad year.
Captive insurance provides an alternative for disciplined companies that want insurance costs to reflect their own loss experience rather than industry averages.
If this sounds familiar, you’re not alone. More importantly, you have options. Traditional insurance models force disciplined companies to subsidize peer organizations with weaker performance. A captive insurance company allows businesses with strong loss histories to take control of their risk management strategy and stop paying for everyone else’s mistakes.
For companies evaluating whether captive insurance may be appropriate for their business, understanding feasibility, capital considerations, and long-term risk strategy is critical. Our guide, Is Captive Insurance Right for You?, explores those decision factors in greater depth and outlines how companies assess captive suitability.
What is a captive insurance company?
A captive is an insurance company that provides insurance to its owners and is controlled by them.
Think of a captive as your own insurance company, designed around your specific exposures rather than broad industry assumptions. Captives provide direct access to reinsurance markets and allow participating companies to retain underwriting profits and investment income that traditional insurers typically keep.
Captive insurance is not about avoiding risk — it is about managing risk more intentionally and aligning insurance costs with actual performance.
Types of captive insurance structures
Captives come in several structures:
- Single-parent captives serve a single company or a group of related companies.
- Group captives bring together multiple businesses with similar risk profiles and strong performance records.
- Rent-a-captive arrangements offer a middle ground for companies wanting captive benefits without full ownership responsibilities.
- Agency captives and other specialized structures serve specific situations.
Most middle-market companies evaluate group captive insurance or rent-a-captive arrangements. Your company’s size, risk profile, and strategic objectives determine the right structure. The structure matters less than the fundamental shift in how you approach risk. Instead of being a passive buyer of insurance, you become an active participant in shaping your risk management outcomes.
How does captive insurance work?
In a captive arrangement, participating companies pay premiums into the captive based on expected losses. Those premiums fund claims, operating costs, and reserves. Losses are paid from the captive, while excess risk is transferred to reinsurance markets.
Captive insurance is commonly used by mid-market and larger organizations seeking greater predictability in volatile insurance markets.
When losses are lower than expected, as they often are for well-managed organizations, unused loss funds remain within the captive. Over time, this may result in surplus growth, potential dividends, and long-term cost stability.
When a group captive makes sense
The primary benefits of captive insurance include cost stability, alignment with loss experience and long-term risk control. Group captives work particularly well for companies in:
- Manufacturing
- Construction and contracting
- Transportation and logistics
- Real estate and property operations
- Professional services, especially those with significant fleet exposure or operating in sectors like contracting, distribution, trucking, and dealerships
Strong group captive candidates typically demonstrate:
- Multi-year loss experience better than industry averages
- Consistent investment in safety and claims management
- Predictable operations and financial discipline
- A long-term approach to insurance and risk strategy
These businesses share a defining characteristic: safety culture and operational discipline directly tied to superior loss experience. They demonstrate predictable loss patterns, beat industry norms consistently, and invest in safety and claims management as competitive advantages.
Conversely, companies with volatile loss histories make poor captive candidates. So do businesses seeking only the lowest possible premium without regard for long-term value. Captives reward discipline and punish poor performance. Indeed, for organizations that lack commitment to maintaining strong results, traditional insurance might serve better.
How Marshall+Sterling helps you navigate captives
Marshall+Sterling’s team brings decades of commercial risk management and captive insurance expertise to guide companies through every phase of captive development and operation.
The process begins with a captive feasibility analysis that examines your loss history, risk profile, and financial objectives to determine whether a captive makes sense. When it does, Marshall+Sterling designs the optimal structure, whether helping you join an existing group captive or establishing a single-parent captive tailored to your needs.
Marshall+Sterling remains a long-term partner focused on maximizing captive value, not simply placing coverage.
Our captive insurance services include:
- Proactive loss control programs
- Claims management to minimize costs
- Regular strategic reviews that adapt to changing business conditions
Next steps: Is captive insurance right for your business?
Companies with consistently outperforming loss ratios should explore captive options. Let’s discuss your company’s loss history, risk management approach, and long-term objectives.
We’ll review your current insurance program together. Strong candidates typically demonstrate multi-year loss experience better than industry averages across their operations.
If you are considering whether a captive insurance company aligns with your business goals, risk tolerance, and financial objectives, we’re happy to discuss feasibility and next steps.
