Group Captives & Alternative Insurance Solutions

A group captive, also known as an alternative insurance solution, is a member-owned company that is fronted by an established insurance company. A member-owned group captive insurance company is formed by multiple companies, often within the same industry, to insure the risk of their collective businesses.

In group health insurance captives, premiums are based on your own company’s claims history, not market swings. If your claims are low, then your premiums are low. The unused premiums are distributed back to the group captive member-owners in the form of dividends.

Group captive insurance differs from traditional insurance in a few ways. Most importantly, member companies have more control over the insurance process, underwriting, and claims management. They also share in the profits and losses of the captive.

This is an attractive option for businesses that have more control over their risks and want to save on insurance premiums.

It is common for companies with low claims history to save up to thousands of dollars on their premiums by switching to group captive insurance. There are two reasons for this. First, the premiums paid by the members are based on the individual member company’s claims history.

Second, premiums are significantly reduced when the fronting insurance company’s loading costs are excluded from the equation. In addition, with a captive, unused premiums are paid back to the member in the form of dividends, unlike traditional insurance premiums where the investment income is retained by the insurance company.

Group captives are often formed by companies within the same industry or with similar risk profiles. These companies can be large or mid-sized and are typically looking for more control over their insurance costs and coverage.

Group captive insurance often makes sense for businesses in the agriculture and retail space or healthcare, hospitality, manufacturing, and more. An industry expert can help you understand if alternative insurance solutions are right for your business.

The best thing about a group captive is that it can cover a wide range of risks. This includes but is not limited to, property and casualty, liability, workers' compensation, and various specialized coverages tailored to the needs of the member companies.

A group captive typically has a significantly lower capital requirement than a single-parent captive. Member companies are required to make a one-time capital investment for group captive ownership, typically in the range of $25,000 to $36,000 per member. This money would be invested on the members' behalf earning investment income which would be incorporated in the returns over time. There is also an expectation that the member will remain in the group captive for at least three to five years.

Yes! While being part of a captive is a commitment, there are ways to leave if necessary or if the needs of your business change. However, the terms and conditions of exit may be specified in the captive's bylaws or operating agreement.

Yes, there are typically tax benefits for belonging to a group captive as long as the group captive meets IRS guidelines. Since there is shared risk with members of the group, premium, and assessment dollars are typically tax deductible. Your accountant can advise you on the potential tax benefits of belonging to a group captive.

Yes, there are administrative expenses involved with running a group captive. However, since these costs are shared across the member companies within the group captive, they are typically less than the savings achieved from the lower premiums.