Understanding the Types of Captive Insurance

Understanding the Types of Captive Insurance

Forming a captive insurance firm to cover your company’s risks is an excellent way of eliminating gaps in what commercial policies offer. Self-insurance via a captive offers vast risk covers that are either unavailable in the conventional market or are too costly. A captive liability firm is one that is formed for the specific reason of covering the liability of an affiliated business. If you are considering going the captive way, first understand the available types.

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Single-Parent Captive

It is often described as ‘pure captive.’ Such firms have a single owner, to whom they offer insurance coverage. The financial officer or the risk manager at the parent firm supervises them. A resident manager mans the single-parent captive insurance.

Affiliate Captive

Several laws govern the functioning of captive liability companies. In some countries, the law doesn’t allow single parent companies to sell insurance cover to independent affiliates. For instance, if a steel manufacturing company owns a chain of schools, the insurer may not be allowed to sell coverage to both. That is where affiliate captive comes in. It is allowed to serve a broader customer base.

Group Captive

They are not pure captives, in that they pay premiums into a group account. Companies pool their funds with others and cover liability when it arises. Therefore, they aren’t insuring themselves only. Instead, they are working as a team with other players that have something in common. For instance, you may find a group for doctors only.


The alternative is popular among smaller companies. However, several costs are involved in the running of the company. For starters, they must obtain a license, and the rules should be followed. A lot of paperwork is also involved.

Captive liability companies are good alternatives to traditional insurance companies. They offer a lot of benefits that firms can siphon. However, one must understand how they operate before diving into a contract.