Is Captive Insurance Right for Your Business?
Captive insurance sounds like something only Fortune 500 companies can access. But group captives have made this strategy available to mid-sized businesses—and for employers with strong safety records and claims management, captives can deliver 20-40% savings compared to traditional insurance while providing more control and transparency.
What Is Captive Insurance?
A captive insurance company is an insurance entity owned by the businesses it insures. Instead of paying premiums to a commercial carrier that keeps all profits, you pay into a captive that you (and other member companies) own. If claims are favorable, you receive dividends or premium refunds. If claims are unfavorable, you share in the losses—but you also control how the captive is managed.
Two Main Types of Captives:
✓ Single-Parent Captives: One company forms its own insurance company. Requires significant scale (typically $500K+ annual premiums) and internal risk management expertise.
✓ Group Captives: Multiple companies in similar industries pool resources to form a shared insurance company. More accessible for mid-sized businesses ($100K+ annual premiums).
For most businesses, group captives provide the best entry point—offering captive benefits without requiring the scale or expertise needed for a single-parent captive.
How Group Captives Work
Group captives operate as a hybrid between traditional insurance and self-insurance:
The Structure:
✓ Member Companies: 20-100 businesses in similar industries (construction, manufacturing, healthcare) join the captive as member-owners
✓ Captive Insurance Company: A licensed insurance entity owned collectively by member companies, typically domiciled in a captive-friendly jurisdiction
✓ Fronting Carrier: A commercial carrier issues policies and handles claims administration, then cedes risk back to the captive
✓ Reinsurance: Excess coverage protects the captive (and members) from catastrophic losses above a certain threshold
Members pay premiums to the captive (not a commercial carrier). The captive pays claims and operating expenses. Any underwriting profit is returned to members as dividends or used to build reserves that reduce future premiums.
The Financial Advantage
Traditional insurance premiums include several components that captives can reduce or eliminate:
✗ Traditional Insurance Premium
- Expected Claims: 60-70%
- Carrier Profit Margin: 10-15%
- Administrative Overhead: 15-20%
- Risk Charge: 5-10%
- Broker Commission: 5-10%
Total: 100% (you pay for all components)
✓ Captive Premium Structure
- Expected Claims: 60-70%
- Captive Profit: Returned to Members
- Administrative: 8-12% (reduced)
- Risk Charge: Eliminated
- Broker Fee: 3-5% (reduced)
Potential Savings: 15-30% vs traditional
The key difference: in traditional insurance, carrier profits and risk charges are kept by the insurance company. In a captive, those amounts are either returned to members (if claims are favorable) or used to build reserves that reduce future premiums.
Who Should Consider Captive Insurance?
Ideal Captive Candidates:
✓ Strong Safety Records: Claims history better than industry average, demonstrating effective risk management
✓ Premium Volume: Typically $100,000+ annual premiums for workers’ compensation or general liability
✓ Long-Term Commitment: Willing to participate for 3-5 years to realize full benefits
✓ Active Risk Management: Invest in safety programs, training, and claims management
✓ Financial Stability: Strong balance sheet to handle potential assessments if captive results are unfavorable
Captives May Not Be Right If:
✗ Poor Claims History: Recent large claims or frequency issues make you a higher risk than average
✗ Low Premium Volume: Under $75,000 annual premiums may not justify captive administrative costs
✗ Cash Flow Constraints: Unable to handle potential assessments or collateral requirements
✗ Short-Term Focus: Looking for immediate savings rather than long-term cost control
Real Example: Manufacturing Company Captive
A 150-employee manufacturing company in Pennsylvania had been paying $180,000 annually for workers’ compensation insurance. Their Experience Modification Rate (EMR) was 0.78—significantly better than the industry average of 1.0—but their premiums kept increasing 8-12% annually despite favorable claims.
Traditional Insurance (5-Year History):
- Year 1: $165,000 premium, $95,000 claims
- Year 2: $178,000 premium, $88,000 claims
- Year 3: $192,000 premium, $102,000 claims
- Year 4: $210,000 premium, $91,000 claims
- Year 5: $228,000 premium, $97,000 claims
Total Paid: $973,000 | Total Claims: $473,000 | Carrier Profit: $500,000
After Joining Group Captive:
- Year 1: $155,000 premium, $89,000 claims, $22,000 dividend
- Year 2: $148,000 premium, $94,000 claims, $18,000 dividend
- Year 3: $142,000 premium, $87,000 claims, $24,000 dividend
Total Paid: $445,000 | Total Claims: $270,000 | Dividends Received: $64,000
Net Cost: $381,000 vs. projected $684,000 under traditional insurance
Effective savings: 44% over three years compared to traditional insurance trajectory
Understanding Captive Risk
Captives aren’t risk-free. Unlike traditional insurance where you pay a fixed premium regardless of claims, captive members share in both favorable and unfavorable results.
Risk Mitigation Strategies:
✓ Specific Stop-Loss: Protects against individual large claims above a certain threshold (e.g., $250,000 per claim)
✓ Aggregate Stop-Loss: Caps total captive losses in any given year to protect against frequency issues
✓ Underwriting Standards: Captives carefully screen members to ensure all participants have strong risk profiles
✓ Reserve Building: Favorable years build reserves that cushion unfavorable years
✓ Loss Control Services: Captives provide safety consulting and claims management to reduce member losses
Coverage Types Available Through Captives
Group captives most commonly cover:
✓ Workers’ Compensation: The most common captive coverage, ideal for businesses with strong safety programs
✓ General Liability: Available through captives for businesses with favorable claims history
✓ Commercial Auto: Some captives offer auto coverage for fleets with good loss records
✓ Professional Liability: Available for certain industries through specialized captives
The Plan Design Audit Approach to Captives
Most brokers only recommend captives to their largest clients or never mention them at all. A Plan Design Audit evaluates whether captive insurance aligns with your risk profile, claims history, and cost control objectives. We model projected costs under traditional insurance vs. captive scenarios, showing best-case, expected-case, and worst-case outcomes so you can make an informed decision based on data—not broker preferences or carrier incentives.
Could Captive Insurance Work for You?
These satisfied clients started with a simple,
no-obligation Plan Design Audit...
These satisfied clients started with a simple,
no-obligation Plan Design Audit...
What makes Horizon Insure Business Group different from other insurance brokers?
Most insurance brokers focus on shopping rates at renewal. Horizon Insure Business Group takes a plan design approach—reviewing how your current insurance and benefits are structured to identify smarter ways to control costs and improve coverage before renewal decisions are made.
Do you only work with businesses in Pennsylvania and New Jersey?
Our primary focus is serving employers in Pennsylvania and New Jersey. This local focus allows us to provide more tailored guidance and hands-on support for regional regulations, carriers, and employer needs.
What is a Plan Design Audit?
A Plan Design Audit is a structured review of your current insurance and employee benefits program. It identifies cost drivers, coverage gaps, and design opportunities so you can make informed decisions before renewal—without pressure to change brokers.
What size businesses do you typically work with?
No. The Plan Design Audit is informational and educational. Many employers use it to understand their options before deciding whether any changes are needed.
Do I have to switch brokers to get a Plan Design Audit?
We primarily work with small to mid-sized employers, typically ranging from 25 to 250 employees, who want more control over insurance costs and benefits strategy.