Managing risk is key to the success of any health plan, and one solution more and more plans and administrators are turning to is captive insurance. With a surge of interest driving the creation of an estimated number of 8,000 captives in the past year alone, their place in the industry isn’t going anywhere.* As we look ahead to 2025 renewal season and beyond, the growth of captive insurance is only set to accelerate. Companies will find themselves needing to address increasingly complex risk management, rising healthcare costs, and other challenges—captives represent an opportunity to meet those needs.**
With that in mind, we want to dispel some myths around captive insurance while helping you brush up on your captive knowledge.
Captive Insurance 101
To put it in simple terms, a captive is a wholly owned subsidiary that is created to provide insurance or reinsurance to a non-insurance parent company or group of companies.*** It’s a way to self-insure that allows the insured party to own the insurer, giving them control over the arrangement they would lack otherwise along with significant tax advantages. Group captives have seen significant growth in recent years, but captive insurance companies have been in existence for more than a hundred years now. The term was first coined by a property-protection engineer, Frederic Reiss, who established the first captive insurance company in 1962.*** Since then, captives have grown exponentially across all industries and many nations, their use stretching across the globe.
Group Captives on the Rise
A group captive is usually created to address the specific risk-management needs of a group of companies and their owners. It can also offer significant tax benefits, which can be crucial for a company’s long-term success. The flexibility provided by a captive arrangement allows for coverage of about any risk a regular insurance or reinsurance company would cover—once a captive is set up, it functions just like any other insurance company, with its own regulatory requirements like reporting and maintaining reserves and capital.
Additionally, captives aren’t restricted to a company’s size. They can be formed by a wide range of organizations of different industries and corporate structures, from big multinational corporations to nonprofit groups. In fact, around 90% of Fortune 500 companies have their own captives.***
“Captives used to be an enigma, but that’s simply not the case anymore,” according to Nick Hentges, CEO of Captive Resources. “Most people we talk to have heard of a captive, have some understanding of how it works, and are getting more comfortable with the idea of joining one.”*
Captive insurance and group captives offer businesses a powerful way to take control of their risk management and insurance costs. By stepping outside the traditional insurance market, companies can gain greater financial stability, improved claims management, and potential long-term savings.
While captives aren’t the right fit for every organization, those with the right risk profile and financial strength can benefit from a customized insurance solution that aligns with their unique needs. As the landscape of risk financing continues to evolve, exploring alternative strategies like group captives could be a game-changer for businesses looking to secure their future with greater flexibility and control.
At BRMS, we’re dedicated to staying on top of the industry’s latest, which includes working with stellar captive partners who help our clients manage risk and reduce costs. Interested in learning more? Pay us a visit at https://www.brmsonline.com.