In its simplest form, a captive is an insurance subsidiary formed to provide risk-mitigation services to its parent company. Basically, a parent company retains the cost of insurance coverage through the captive instead of paying premiums to a third-party insurer for commercial insurance. Captives are usually formed to supplement other commercial insurance coverage and allow the parent company to retain some risks at a lower cost. The captive can provide coverage that is unattainable or inadequate in the private market and, in addition to the opportunity to obtain more comprehensive or specialized coverage for the company’s risks, the parent company can achieve cost savings, tax savings and better control over claims decisions.

1. Business Insurance Survey, Business Insurance, March 2021.