Captive insurance companies are widely-used risk management tools which can significantly reduce the costs of enterprise risk management.  Essentially, a “captive” is a licensed insurance carrier which is controlled by a parent company (or multiple parents).  Over the last several years, many employers have decided to insure employee benefits, such as health insurance, group term life and long-term disability, through their captives.  Through captives, these types of risk can be diversified, reducing the volatility of loss claim experience through the risk portfolio effect.
While there are other benefits in forming or taking part in a captive insurance program (tax, estate-planning), the primary goal of captive insurance is to remove the insurance premiums from the commercial marketplace, which charges excessive premiums or may not be able to insure “hard” risks.
Inside the captive structure, the insurance premiums may be controlled through better underwriting and access to the reinsurance marketplace.  In short, forming a captive or otherwise joining in an existing captive insurance program oftentimes gives businesses greater control, better flexibility and a better chance at reducing insurance costs than would otherwise be made available in the traditional insurance marketplace.

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