A captive insurer is an insurance company that a business, or group of businesses, owns in order to insure its own risks. Instead of paying premiums entirely to an outside insurer, the business funds and controls a licensed insurer that covers some of its exposures. It is a sophisticated tool, not a shortcut, and it suits specific situations.
Larger businesses form captives for reasons that go beyond price. A captive lets a company retain and manage risks it understands well, potentially at lower long-term cost than commercial premiums; access reinsurance markets directly; tailor coverage to risks the commercial market prices poorly or will not cover; and keep underwriting profit and investment income that would otherwise go to an outside insurer. Control and customization are often the real drivers.
A captive is a real insurance company, with capital requirements, regulatory oversight, administration, and genuine risk retained on the owner's balance sheet. It only makes sense above a certain scale and predictability of risk, and it requires disciplined governance. Poorly structured or used mainly for tax reasons, captives have drawn regulatory scrutiny, so the motivation must be genuine risk management.
Captives tend to fit established businesses with stable, well-understood risks, meaningful premium spend, and the sophistication to run one properly. For the right owner, a captive turns insurance from a pure cost into a managed part of the enterprise. It is a strategy to evaluate carefully with specialized advisors.
Own the insurer, own the risk deliberately.
This is general information, not personalized insurance advice. Coverage terms, definitions, and availability vary by policy and provider.