What is the difference between standard market insurance programs and captive insurance programs?

Captive insurance programs offer a creative solution to insurance policies. What is the difference between standard market insurance programs and captive insurance programs? We’re here to breakdown the differences.

What is a captive insurance company?

A captive insurance company provides coverage to its owners. In other words, the insurance company is owned and controlled by its insured. When you invest in a captive insurance company, you see all the components of the premium and play a part in the pricing and delivery of the premium. 

Among captive insurance companies are group captives. These are an insurance facility for unrelated participants who join together to share risk. You are able to control what you add and subtract to suit your specific situation.

So, what is the difference between standard market insurance programs and captive insurance programs?

In a traditional insurance program, the insurance carriers take on all risks and retain all profits. With captive insurance, the captive participants share in the risk for a potential reward of lower costs, underwriting profits, and investment incomes.

Captive insurance programs and traditional insurance programs are not mutually exclusive. In fact, a lot of traditional insurance companies work with captives to reimburse claims. 

Why should you take the risk of a Captive Insurance policy?

Companies typically take the risk on Captive because the opportunity to capture the profits your fully-insured carrier typically takes in. 

When you compare traditional and captive programs risk, the captive may appear to have more risk initially. However, Captives offer long-term solutions and control your risk over time. If you are unhappy with your current traditional health insurance program, consider whose interest your large insurance company is looking out for.

How exactly does Captive insurance protect you from catastrophic losses?

Captive programs include the protection of reinsurance/ stop-loss agreement that limits any catastrophic or aggregation of risk. The program’s reinsurance structure limits the participant’s maximum loss. In addition, this means the participant will never need to fund more than the premium and collateral.

Why do Captives require collateral? 

Captives require collateral to ensure the funding of the captive assumed risk above the premium, net expenses. This ensures all potential losses are funded up front and participants are not required to contribute more money.

Captive insurance programs can be extremely beneficial to business owners. Employees will notice an increase in wellness, personalized guidance, and technology advancement that bridge the gap between healthcare and benefits. At SBMA, we can partner with other networks that may meet your employee needs better.