Pros and Cons of Group Captive Insurance

John Lightfoot | Sep 7, 2022 | minute read

Pros and Cons of Group Captive InsuranceInflation is rising, competition is getting fierce, and new risks emerge every day for businesses in every industry. To remain relevant and viable, business owners must make wise choices about curtailing costs wherever they can. Group captive insurance provides a way to help you get the necessary insurance coverage without relying on traditional insurance companies.

Captive insurance groups, which are a form of self-insurance, are designed to meet the risk management needs of their members. Companies that use group captives range from multinational companies to nonprofits and everything in between.

Once a group captive has been established, it operates much like any traditional commercial insurance company. Group captives must follow state regulations and reporting requirements. They are also responsible for managing capital and establishing sufficient reserves.

As with any other insurance company, group captives have their share of pros and cons. We will look at the advantages and disadvantages to help you determine if a group captive insurance company is right for you.

Understanding Group Captive Insurance

Understanding Group Captive Insurance

Traditional insurance companies play a vital role in helping businesses manage and mitigate risks, yet insurance costs can get out of control. Insurance premiums are a major cost for businesses. Unless a company is extremely large, it is not practical to self-insure for all risks.

Commercial insurance companies establish premiums for businesses based on the loss experience of similar types of businesses in the industry. Even if a company maintains an excellent loss experience ratio, their rates could increase based upon excessive losses from a similar business within the risk pool.

Group captives are becoming popular as an alternative to traditional commercial insurance policies. Some companies find that group captives give them greater control over certain risks which allows them to decrease their overall insurance costs, and they leave the rest of the risk to traditional insurance companies.

Pros of Group Captive Insurance

It is crucial to weigh the pros against the cons in considering managing some business risks with group captive insurance as with any decision business owners make.

Free Download: The Definitive Guide to Group Captive Insurance

Here are some of the benefits business owners get with captive insurance:

  • Tailor policies to the company’s unique risk exposures
  • Allow profits to grow as losses are controlled and gain access to investment income from unused premiums
  • Get control over claims costs as group members take an active role in how to pay for predictable losses
  • Strengthen loss prevention efforts
  • Enhance claims management processes
  • Ability to accept greater risks over time
  • Leverage tax advantages as reserves may accumulate untaxed until they become earnings
  • Take advantage of lower future rates through membership in a group with above average claims experience
  • Enjoy greater stability as they are not at the mercy of traditional insurance companies that change policy limits, underwriting guidelines, and expenses at will

Cons of Group Captive Insurance

While group captive insurance has plenty of benefits, potential members should also consider the following disadvantages of group captive insurance:

  • Must be prepared to put up collateral to ensure a “promise to pay” to other members of the groupMust be prepared to pay additional premium per the groups assessment provision when you fail to control frequent smaller claims
  • Requires some additional time to participate with the membership at annual board meetings
  • Must comply with changing taxation laws on distribution of profit to the membership
  • Unable to spread risk if your group does not continue to find and keep new members
  • Must understand that collateral requirements do not end when you exit the group for a period of time determined by the group design.

Final Thoughts

Running a successful business requires business owners and managers to evaluate all expenses and sources of revenue. A group captive insurance policy may be a good alternative to cover a business’ common risks.

If you believe the pros listed here outweigh the cons, it may be an opportune time to explore the possibility of being part of a group captive insurance company.

A licensed insurance agent who is experienced with group captive insurance plans is your best resource to help you sort out the pros and cons as they apply to your unique business.

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Free eBook: The Definitive Guide to Group Captive Insurance


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To learn more about how your company may be able to leverage the benefits of group captive insurance, contact one of the experts at Leap Carpenter Kemps Insurance Agency. You may discover that group captive insurance is the perfect solution for your insurance needs.

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About The Author

My insurance career spans more than two decades and includes extensive work in group captives and construction, working with general contractors and subcontractors all over the State.

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