What Is Captive Insurance and What Are the Types of Captive Insurance?

Did you know that the first captive insurance company in the United States was started in 1953 in Ohio? You might be more familiar with traditional insurance types and are now wondering what is captive insurance? We are going to give you the captive insurance definition in the article below and explain more about the types of captives available. 

Keep reading to learn the ins and outs of captive insurance.

What Is Captive Insurance?

A captive insurance company is owned by one or more parent organizations and it is established to insure the risks of the owners. In lamest terms, this insurance company is owned and controlled by its insureds. 

The main benefit for those insured with a captive is that those insured benefit from the underwriting profits from the captive insurer’s. A captive insurance is used by people that want to put their own capital at risk and create their own insurance company. It is also used by those that want to achieve their financial risks. 

There are two main captive groups:

Pure Captives

This is captives that are insuring only the risks of either their owner or their owners. There are single parent captives that only have one owner and there are group captives that have more than one owner. 

A group captive is either entities or a group of individuals that come together to own a captive insurance company together. 

Sponsored Captives

This group of captives is owned and controlled by parties that have no relation to those insured. The captive is set up by an insurance entity for its clients to use for their own insurance. The sponsor contributes the capital for the captive insurance company and they only require the insured to pay an access fee instead of paying in capital. 

In some cases, the sponsored captive doesn’t pool the risks of its insureds, instead it will have a separate underwriting account for each participant that is insured. Sometimes these accounts are legally protected or legally separated to ensure that the assets in the participants account are never used to pay liabilities for another unless the two parties have agreed to do so. 

One of the main differences between a sponsored captive and a pure group captive is that the sponsored captive can be structured to maintain separate underwriting accounts. In a pure group captive, the member and owner share the risks with others that are insured. Another difference is that in a pure captive the risk is based on the group as a whole but sponsored captive the risk is usually only based on each persons underwriting performance. 

Feeling Like a Captive Insurance Pro?

We hope that now that you know the answer to the question what is captive insurance and everything there is to know about captive insurance you can make an informed decision whether or not this type of insurance is good for you. 

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