How traditional insurance works
With traditional insurance, you pay premiums to a commercial carrier and the carrier takes on your risk. It is simple and predictable on the surface, but there are tradeoffs underneath.
Your premiums are largely set by broad market averages, not by how well your business actually performs. When the market hardens, your rates go up even if you have not filed a claim in years. The carrier keeps the underwriting profit and the investment income earned on your premiums. And you have limited visibility into how your dollars are spent or how claims are handled.
In other words, a well-run business with few losses often ends up subsidizing companies with worse track records. You pay for the market, not for your own performance.
How a group captive works
A group captive is an insurance company owned by its members. Instead of paying premiums to a traditional carrier, a group of like-minded businesses comes together to insure their own risk. Members can be in the same industry or different industries, and pooling resources allows smaller employers to operate with the leverage of much larger ones.
The structure spreads risk in layers. Each member retains its smallest, most predictable losses. Medium-sized risks are shared across the group. The largest, catastrophic risks are transferred to a reinsurer. Think of it as funding a large deductible with other best in class businesses.
The difference shows up in a few important ways:
Your premiums reflect your performance. Pricing is based on your own loss history and risk characteristics, not market averages. Businesses that invest in safety and risk control see that investment rewarded.
Unused premium can come back to you. When the member performs well, underwriting profit and investment income are returned to members rather than going to a commercial carrier.
You get real transparency. Members have clear visibility into claims activity, expenses, and exactly where each premium dollar goes.
You gain Day 1 stability. Because the group controls its own pricing and program structure, members are far less exposed to the swings of the commercial insurance market.
You Gain Day 1 Control. Because members are the owners of the insurance company, each member has control over the claims process and direction.
Group captives can cover most standard policy types, including workers compensation, general liability, and auto, and medical stop-loss captives apply the same approach to employee benefit programs.
Take the quiz: Is your business a good fit for a captive?
What is the catch?
A captive is not the right fit for every business, and it is worth being honest about that.
Members take on more risk than they would with a traditional policy, which means a captive rewards companies that take risk management seriously. There are capitalization requirements, so your balance sheet needs to be able to support participation. The financial benefits compound over years, not months, so businesses looking for a quick one-year fix are usually better served by the traditional market.
The best captive members tend to share a profile: financially strong, committed to safety, with leadership that understands how day-to-day operational decisions affect loss outcomes.
Is your business a good fit for a captive?
If you read the section above and thought, that sounds like us, it may be time for a closer look. Businesses that tend to thrive in a group captive usually have:
A better-than-average loss history and a genuine safety culture. Enough premium volume to make risk retention worthwhile, typically $250,000 or more in combined casualty(General Liability, Auto, and Workers Compensation) premiums. The financial strength to meet capitalization requirements. And leadership that wants more control over insurance costs instead of riding the market cycle.
Wondering where your business stands? Take our short quiz to see if a captive could be a fit for your operation, and explore our captives page to learn more about how these programs work.
Our advisors have helped Montana businesses and companies across the country design captive programs built around how their operations actually work. If a captive makes sense for you, we will tell you. If it does not, we will tell you that too.
Take the quiz: Is your business a good fit for a captive?
