Captive Insurance

Exploring Different Captive Models

Captive insurance is a form of self-insurance where a company creates its own insurance company to cover its risks. This approach offers greater control over insurance costs and coverage. There are several models of captive insurance, each with unique characteristics and benefits. Let's explore the four main types: Risk Retention Groups, Group Captives, Protected Cell Companies, and Single Parent Captives.

Types of Captive Models

Risk Retention Group (RRG)

A Risk Retention Group (RRG) is a liability insurance company owned by its members, who are businesses or organizations from the same industry or facing similar risks. Created under the Liability Risk Retention Act of 1986, RRGs are designed to provide liability insurance across state lines with streamlined regulatory oversight. They are particularly beneficial for industries that struggle to find affordable liability coverage in the traditional market. RRGs can only offer liability insurance and are regulated by the state in which they are domiciled.

Key Features

Member-owned and operated

Provides liability insurance only

Regulated by one state but can operate in multiple states

Tailored coverage for specific industries

Group Captive

A Group Captive is an insurance company owned by multiple organizations, typically from the same industry or with similar risk profiles. This model allows smaller companies to pool their resources and share the risks and benefits of captive insurance. Group captives provide greater control over insurance costs and coverage compared to traditional insurance.

Key Features

Owned by multiple organizations

Shares risks and benefits among members

Provides coverage for various lines of insurance, including general liability, workers' compensation, and auto liability

Can be homogeneous (same industry) or heterogeneous (different industries)

Protected Cell Company (PCC)

A Protected Cell Company (PCC) is a corporate structure that consists of a core company linked to several cells, each with its own assets and liabilities. This structure allows for the segregation of risks and assets, providing protection against cross-contamination of liabilities. PCCs are commonly used in the insurance and reinsurance industries.

Key Features

Single legal entity with multiple cells

Each cell has separate assets and liabilities

Cells are independent of each other and the core company

Used for various purposes, including captive insurance and asset holding

Single Parent Captive

A Single Parent Captive, also known as a pure captive, is an insurance company owned by one parent company to insure its own risks. This model provides the parent company with complete control over its insurance program, allowing for customized coverage and cost savings. Single parent captives are suitable for large companies with significant risk exposure.

Key Features

Owned by one parent company

Insures the risks of the parent company and its affiliates

Provides flexibility in risk management and coverage

Can write third-party insurance and generate revenue

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