Caleb Meriwether, Haven Insurance Partners, visits with Dan Reaves, host of ‘The Dan Reaves Show,’ today and each Wednesday at 3:30 p.m., to discuss all things insurance.
For many successful businesses, traditional insurance eventually stops feeling like a good deal. Premiums rise year after year, coverage becomes more restrictive, and large deductibles or self-insured retentions shift more risk back onto the business—without any corresponding upside.
For certain companies, a captive insurance program can be a powerful alternative.
A captive is not a replacement for insurance discipline or risk management—it is an advanced risk-financing tool that allows qualified businesses to take greater control over how their risk is insured, priced, and managed.
What Is a Captive Insurance Program?
A captive insurance company is an insurance company owned by the business (or group of businesses) it insures. Instead of paying premiums entirely to a third-party carrier, the business pays premiums into its own insurance company, which is licensed, regulated, and operates like any other insurer.
Captives are typically used to insure:
- Deductibles or self-insured layers
- Hard-to-place risks
- Predictable or frequency-based losses
- Gaps or exclusions in traditional policies
The business still purchases commercial insurance for catastrophic losses, but the captive fills the space between “small losses” and “worst-case losses.”
Key Benefits of a Captive Insurance Program
- Greater Control Over Insurance Costs
In a traditional insurance program, premiums are based on pooled loss experience across thousands of unrelated companies. In a captive, your premiums are driven primarily by your own loss history and risk profile.
If your business has:
- Strong safety practices
- Stable or predictable losses
- A long-term view of risk
you may benefit from more stable and transparent pricing over time.
- Retaining Underwriting Profit Instead of Giving It Away
In the traditional market, if your losses are low, the insurance company keeps the underwriting profit. In a captive structure, that profit stays within the captive, subject to regulatory requirements and reserves.
Over time, well-run captives can accumulate surplus that:
- Offsets future premiums
- Funds higher deductibles
- Is distributed back to owners (subject to structure and tax rules)
This flips the insurance relationship from “pure expense” to risk capital management.
- Customized Coverage for Your Actual Risks
Standard insurance policies are designed for broad markets, not individual businesses. Captives allow for customized policy terms that align more closely with how your business actually operates.
This can include:
- Filling coverage gaps
- Tailoring triggers or limits
- Addressing emerging or uninsured risks
- Structuring deductibles more strategically
The result is often better alignment between risk and coverage, rather than forcing the business to fit into a standard policy form.
- Improved Risk Management and Loss Control
Businesses with captives tend to become more disciplined about safety and risk management—because they now directly benefit from better loss performance.
This often leads to:
- More proactive safety programs
- Better claims reporting and management
- Fewer surprise losses
- Improved operational decision-making
Captives create a financial incentive to invest in prevention rather than just transferring risk.
- Long-Term Stability in a Volatile Insurance Market
Commercial insurance markets are cyclical. Hard markets bring higher premiums, reduced limits, and fewer carrier options—often regardless of an individual company’s performance.
A captive can provide:
- Greater insulation from market swings
- Continuity of coverage during hard markets
- Strategic flexibility when carriers pull back
This stability can be especially valuable for businesses with long-term contracts, fixed pricing, or regulatory requirements.
- Potential Tax and Cash-Flow Advantages (When Properly Structured)
When established and operated correctly, captive programs can offer legitimate tax and cash-flow benefits, including:
- Deductibility of premiums (subject to IRS and regulatory compliance)
- More efficient timing of loss payments
- Investment income on captive reserves
It’s critical that captives are properly designed, managed, and documented. Poorly structured captives can create compliance risk, while well-structured ones withstand regulatory scrutiny.
Is a Captive Right for Every Business?
No. Captives are not a shortcut to cheaper insurance, and they are not appropriate for every company.
They are generally best suited for businesses that:
- Have consistent revenue and cash flow
- Spend a meaningful amount on insurance annually
- Have predictable or controllable losses
- Take a long-term view of risk management
- Are willing to operate within regulatory oversight
For the right business, however, a captive can be a strategic asset, not just an insurance solution.
Final Thought
A captive insurance program is not about avoiding risk—it’s about owning it intelligently.
For business owners who are frustrated with rising premiums and shrinking coverage, a captive may offer a way to transform insurance from a sunk cost into a tool for financial and operational control.
If you’re curious whether a captive makes sense for your business, the first step is a feasibility analysis, not a sales pitch—looking objectively at your losses, premiums, risk tolerance, and long-term goals.
