June 14, 2024

Business Bib

Business & Finance Blog

Captive Insurance 101: What Is Captive Insurance?

3 min read

Wondering what captive insurance is? Here is all you need to know about captive insurance so you can make an informed decision.

Captive insurance? That sounds like something pirates or bank robbers (or their victims) might need.

No, captive insurance actually is a common type of business. In fact, there might be a location very close to where you live.

You might think of a captive insurance office as simply an insurance agency—and that wouldn’t be wrong. However, not all insurance agencies are captive insurance agencies.

Captive agencies are tied to single companies and have insurance policies connected to that company. Independent insurance agents, in contrast, work with various insurance companies.

The Structure of Captive Insurance Companies

A captive insurance company (aka “a captive”) is a company that insures the risks of an affiliated business. Captives offer parent companies good-quality coverage in areas not covered by standard policies.

Captives use premiums parent companies would have paid a commercial insurer to cover any claims against that company.

Captives use premiums their parent company would have paid to a regular commercial insurer to cover any claims against that company.

There are several types of captives; most begun to insure a specific company or group of companies and accepting risk as a shared burden.

Independent vs. Captive Insurance Agencies

Insurer-sponsored agency captives (such as those with offices near where you live) are widespread and popular.

Their purpose is not to provide insurance for their corporate owners. They operate in reciprocity, exchanging stock shares, customer premiums, publicity, and other benefits.

Let’s take a look at the differences between independent and captive insurance agents. A comparison should help you understand why both exist and have their respective clientele.

Captive Insurance Agents

Captive insurance agencies operate under a franchise-type relationship with the parent company. As with restaurant franchises, captive insurance agents handle staffing, advertising, and overhead generally.

One benefit to working with a captive insurance agent is their ability to bundle different policies (e.g., homeowners and auto) for a discount. Another is you’re able to work with the agent to adapt an insurance policy to meet your needs.

Independent Insurance Agents

Customers sometimes prefer independent insurance agencies. This is because of the number and variety of insurance companies they represent.

An independent agent lets you weigh the advantages and disadvantages of different policies. Also, this person will still be available should you lose coverage with your existing company.

Captive Insurance Branding

Captive insurance agencies have the advantage of a known and respected brand connection. Well-known examples of captive insurance brands include State Farm and Allstate. There are many other familiar names as well.

Another advantage captive insurance agents have over independent ones is the company brand. This is especially true if it’s a company like those just mentioned that’s been in business for many years. It’s a company that has the public’s trust.

If you hear the jingle, “Like a good neighbor,” what company comes to mind? If “State Farm” is your answer, it should be clear that at least one of these brands is alive and well today.

Do I Want a Captive Insurance Agency?

You have many insurance-buying options, each with its pros and cons. You may be thinking of getting new policies. If so, it’s worth your while to speak with several different agents.

Be sure to approach these agencies with a list of your specific needs. Do this especially if any are a bit out of the ordinary, like coverage for a classic car or a backyard swimming pool. Look for an agent who shows sincere interest in your needs.

We’ve barely scratched the surface of the rather complicated captive insurance concept. If you’d like to read more about it, though, keep checking our website for pertinent topics.