Captive Definition & Meaning | Insurance Term | CSIMarket
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Glossary

Captive

Insurance Term

Captive insurance refers to an arrangement in which a company creates a subsidiary to provide insurance coverage for itself and its affiliated companies or subsidiaries. The captive insurance company offers insurance policies to its owners, who can choose the specific coverage they need, and premiums are paid to the captive instead of to an outside insurer.

Captives are typically used by larger organizations with high-risk profiles and significant assets to protect. They can be set up as a way to reduce insurance costs, provide coverage for risks that commercial insurers may not be able or willing to cover, and provide greater control over insurance policies.

One potential benefit of a captive is that the company can potentially capture profits that would have been paid to an outside insurer as premiums, as well as benefit from tax advantages that may be available in the jurisdiction where the captive is located. Captives can also provide greater flexibility in terms of policy design and claims handling.

In the insurance industry, captives are increasingly used as a risk management tool, with many companies establishing captives to manage specific risks, such as cyber liability or product liability. However, captives can also pose risks, such as reduced transparency and potential conflicts of interest, and it*s important for companies to carefully evaluate whether a captive is the right choice for their needs.


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