What are the Different Types of Captive Insurance?

There are many different types of captive insurance, a type of private insurance a company can use to cover liabilities if it has difficulty obtaining insurance on the public market. These include segregated portfolio companies (SPCs), risk retention groups, and special purpose vehicles (SPVs), along with agency, group, single parent, and association captive insurance. For companies unable to support their own captive insurance, rent-a-captive is available, offering similar services for a fee to smaller companies and organizations.

One of the most common types of captive insurance is a single parent setup, where a company establishes insurance for itself and any affiliates and subsidiaries. This can be an option for very large companies that want to meet their insurance needs effectively and at a reasonable cost, particularly if they operate in hazardous industries like mining. Buying open market insurance could be extremely expensive or impossible for such companies, making formation of a captive necessary.

Group and association captive products both serve groups of companies. In an association captive, all companies within a given industry or sector can access coverage through the insurance company, while a group captive is an insurance firm owned by a group of companies with common interests. For smaller companies that have trouble finding coverage but cannot access insurance through these categories, rent-a-captive insurance is an option.

In agency captive plans, an insurance broker sets up a reinsurance plan to cover specific clients. Sometimes, these clients may not be able to receive regular coverage. In other cases, providing standalone coverage through the agency could expose the broker to unreasonable risk. Hence, the broker needs to set up an insurance policy for her insurance, sharing the risk with another company. SPV and SPC captive insurance can offer similar services, along with isolating the risk so if the insurance does have to pay out, it cannot drag the whole company down with it.

In a risk retention group, people can purchase liability protection for issues like professional malpractice. Doctors and lawyers can both find malpractice insurance fees very high, and this can be one option for keeping them manageable. Companies can set up groups together or independently, becoming shareholders in the insurance company, as well as holding policies. First party liability coverage, like workers' compensation, is not available through this type of captive insurance.

Captive insurance is usually a good option for people or companies who are involved in industries with a high degree of risk and have trouble getting insurance through other means. If insurance is too costly or not available, turning to a captive product can provide people with more options. Insurance specialists can provide people with advice on their options and recommendations about how to proceed, if they are not sure about how to get the best coverage for their needs.