Captive insurance companies are a form of self-insurance. Captives are set up by a parent group or groups, with the specific objective of covering the risks to which the parent is exposed. The growing allure of captives is in part due to their ability to provide tailored risk management solutions that traditional insurance may not offer. There are multiple types of captives, each with its unique features, benefits, and drawbacks.
A different captive to suit every senior living or healthcare facility
Among the various types of captives are Pure Captives, owned solely by their insureds for insuring the risks of the parent company; Group Captives, formed by multiple companies to share risks; Association Captives, set up by industry groups for their members; Rent-A-Captives, which allow entities to rent a captive facility; Protected Cell Captives, segregating assets and liabilities into individual cells; Micro Captives, with less than $2.3 million in annual premiums; and Special Purpose Vehicle (SPV) Captives, designed for one-time risks such as large projects.
Each type of captive offers unique benefits and drawbacks tailored to specific needs. Pure Captives offer complete control but come with the responsibility of management. Group and Association Captives allow for shared risks but may have less customization. Rent-A-Captives and Protected Cell Captives offer lower entry costs and flexibility but may have less control. Micro Captives are affordable and provide tax benefits, while SPV Captives are highly customizable but limited in scope. Understanding the nuances between these types can be essential for effective risk management.
A Pure Captive is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners.
- Customization:Pure Captives allow the parent company to create highly customized insurance policies tailored to their specific risks and needs.
- Control: The parent company has complete control over the underwriting policies, claims decisions, and investment strategies, which enables better risk management.
- Regulatory Savings: Pure Captives are often domiciled in jurisdictions with favorable regulations, reducing compliance burdens compared to traditional insurance companies.
- There are over 2,000 pure captives operational worldwide.
- Pure captives account for over 30% of the global captive insurance market.
- The average premium volume for a pure captive is over $100 million.
Pure Captives are also known as Single Parent Captives. For healthcare and senior living facilities, single parent captives could cover professional liability, general liability, property damage, and specific risks not covered by traditional insurance providers.
Click here for more information on single parent captives.
A Group Captive is formed by a group of companies from similar or different industries coming together to share risks.
- Shared Risks: In a group captive, all member companies share the risks and, consequently, the profits or losses, providing a mutual risk-sharing mechanism.
- Economies of Scale: Multiple companies coming together to form a group captive can result in significant cost savings due to reduced overhead and shared administrative expenses.
- There are over 1,500 group captives operational worldwide.
- Group captives account for over 40% of the global captive insurance market.
- The average premium volume for a group captive is over $50 million.
There are several types of group captives, including heterogeneous and homogeneous captives, risk retention groups, agency captives, association captives, and industry captives. Click here for more information on group captives.
Protected Cell Captives
Protected Cell Captives separate assets and liabilities into distinct cells, protecting each participating entity from the credit risk of the others.
- Segregation: Each cell within a Protected Cell Captive is a separate entity, with its assets and liabilities kept separate from those of other cells, providing individual risk mitigation.
- Independence: Cells can operate independently, allowing for customization and targeted risk management within each segregated unit.
- There are over 1,000 protective cell captives operational worldwide.
- Protective cell captives account for over 20% of the global captive insurance market.
- The average premium volume for a protective cell captive is over $100 million.
Protected Cell Captives are commonly known as a Segregated Cell. They are a specific form of captive insurance where a single legal entity, known as a ‘core’, is divided into individual ‘cells’. Each cell operates as a separate entity for the purpose of segregating assets and liabilities. . Click here for more information on protected cell captives.
A Micro Captive insures the risks of its parent company and has tax benefits, provided it receives less than $2.3 million in annual premiums.
- Tax Benefits: Micro Captives qualify for specific tax benefits under IRS Section 831(b), making them a cost-effective solution for smaller companies or those with specialized risks.
- Low Entry Cost: Micro Captives require less upfront capital to establish, making them accessible to smaller enterprises that may not have the resources for larger captives.
- There are over 5,000 micro captives operational worldwide.
- Micro captives account for over 10% of the global captive insurance market.
- The average premium volume for a micro captive is under $10 million.
Micro Captive Insurance can cover a broad range of risks. The specifics depend on the needs and risk profile of the organization setting up the captive. Click here for more information on micro captives.