Understanding Group Captive Insurance in P&C

Harnessing the Power of Property and Casualty Insurance Group Captives to Enhance Risk Management and Control Costs

To grasp how Group Captive insurance operates, it’s crucial to understand two key concepts: the foundation of all insurance and the principle of self-insurance.

The Foundation of Insurance

At its core, insurance involves transferring a company’s risk to an insurer in exchange for a premium. In the conventional insurance market, businesses pay premiums to an insurance company, which then covers their claims. However, premiums can increase due to market conditions rather than the company’s individual claims experience. This can be frustrating for companies that maintain a good safety record yet still face rising premiums because their industry has high claim rates.

The Principle of Self-Insurance

Self-insurance allows companies to assume a greater level of risk in exchange for lower premiums by increasing their deductibles. The deductible is the portion of the risk that the company “self-insures.”

What is Group Captive Insurance?

A Group Captive is taking the self-insurance model one step further. It is an insurance company that is owned by the organization that it insures. Rather than paying a conventional insurance company, the captive owners choose to retain risks at a lower cost while transferring others (catastrophic losses) to an insurer. If the Captive is profitable, the members earn equity which creates an inherent reward for maintaining safety and having fewer claims.
Why Consider a Group Captive?

Companies typically consider joining or forming a group captive for the following reasons:

1. Greater Control Over Insurance Costs: Group captives allow companies to manage and potentially reduce their insurance expenses.
2. Increased Control of the Insurance Program: Members can tailor their insurance programs to better suit their specific needs.
3. Enhanced Focus on Safety and Risk Management: By having a stake in the insurance company, businesses are incentivized to prioritize safety and risk management.

While this article can provide a general understanding of how Group Captive Insurance works, there is so much more that is involved in this model. There are various models, structures, and reasons for joining or forming a captive, and for the right group, they are an excellent option.

Connect with a member of our team of OneDigital Property & Casualty strategists to learn more about Group Captive P&C insurance and discover if it might be the right option for your business.

Interested in learning more about the state of the property insurance market and gaining some insight into the insurance industry? Check out this recent feature in Insurance Thought Leadership: Scott Honer Discusses How Natural Disasters Affect the Property Market.