Understanding the Different Types of Captive Insurance Programs

captive insurance programs

Establishing a captive insurance program can help your company keep costs in check, give you control over key elements of your insurance program and create return on invested capital. If you are considering using a captive insurance structure for your business, you will need to determine which of the three types of captive insurance programs makes the most sense for your business: Single-Parent Structure, Group Captive (Risk Retention Group) Structure, or a Protected Cell Captive Structure.

Single-Parent Structure

 

The Single-Parent captive insurance structure is the most common choice in the industry today. Under this structure, the captive insurance company created is a corporation that is wholly owned by one company (usually the company being insured.)

Single-Parent captives may provide coverage directly, or it may reinsure the risks of another insurance company (such as worker’s compensation, professional liability coverage, etc.)

Group Captive (Risk Retention Group) Structure

Under a Group Captive structure, sometimes called an Association Captive or a Risk Retention Group, several businesses join together to use a captive insurance program. They may do so to obtain coverage or limits beyond what is available to them through traditional insurance arrangements. Many trade groups and formal associations use group captive arrangements, although there is not a requirement that the businesses have any type of formal relationship.

With a group captive structure, the insurance company is a corporation with a board of directors. There may be more than one share class of stock in the company, providing a mechanism to reflect each underlying group member’s claim experience.

Protected Cell Captive Structure

Under a third type of structure which we’ll refer to as a Protected Cell structure (formerly called a Rental Captive structure), an existing captive insurance company owns the managing company (the “Protected Cell” or “Sponsored Captive” company.) That entity handles the operations tasks, qualifies and creates the individual “cells” and provides for lower overhead and other cost savings for individual companies. In the states where Protected Cell captives are allowed, all lines of coverage can be underwritten using this structure.

The protection is provided by legislation that essentially protects each cell and its owners from the creditors of other cells’ owners, providing a firewall of sorts. Each cell must provide security against its own claims, and is subject to audit requirements. This structure may be attractive to groups that look very different from a premium size standpoint.

Not Sure How to Choose? Venture Captive Management Can Help

If you aren’t sure which type of captive insurance program makes the most sense for your company, that’s okay. Venture Captive Management can help you evaluate your options. With more than 15 years of experience helping both for-profit and not-for-profit companies meet their needs for alternative funding structures, you can rely on our team of professionals to have the underwriting, claims, and accounting knowledge you need. We are committed to helping our customers cost-effectively insure their risks.

To learn more about the various types of turn-key captive insurance solutions we offer, contact Venture Captive Management today online, or call us at 770.246.8535.