Distinguishing Captives

The following table describes the distinctions between the standard insurance market and captive insurance.

Description Captive Insurance Companies Traditional Insurance Companies
Costs and Expenses Generally lower operating costs and premiums actuarially based on individual loss history.
Operating costs typically stable year to year.
Operating costs generally not disclosed and premiums based on industry data.
Investments Captive invests loss funds and any investment income is maintained for the benefit of captive owners. Insurance company retains all investment income.
Cost Stabilization Captive owners fund their own predictable losses while reinsuring catastrophic exposures, and premiums can be stabilized through loss control. Premiums increase and decrease based on insurance cycles, not individual’s loss experience.
Risk Profiles Captive owners may decide which risks are acceptable and evaluate prospective members.* Insurance company selects only those classes of risk that conform to its "standards".
Choosing Services Captive owners decide which services will be purchased, promoting cost effectiveness. The standard market avoids providing individual services on a fee basis.
Claims Greater control over claims adjudication, including:
  • Direct access to the claims adjuster and ability to designate claims requiring special attention
  • Input regarding choice of legal counsel
Less control over claims adjudication. Claims are typically handled by the insurance company.

* Subject to final approval by the program insurer.