What is a captive insurance company?
A captive insurance company provides coverage to its owners. In other words, the insurance company is owned and controlled by its insured. When you invest in a captive insurance company, you see all the components of the premium and play a part in the pricing and delivery of the premium.
Among captive insurance companies are group captives. These are an insurance facility for unrelated participants who join together to share risk. You are able to control what you add and subtract to suit your specific situation.
So, what is the difference between a “standard” market insurance program and a captive insurance program?
In a traditional insurance program, all risk is assumed by and all profits are retained by the insurance carriers. With captive insurance, the captive participants share in the risk for a potential reward of lower costs, underwriting profits, and investment incomes.
Captive insurance programs and traditional insurance programs are not mutually exclusive. In fact, a lot of traditional insurance companies work with captives to reimburse claims.
Why should you take the risk of a Captive Insurance policy?
Companies typically take the risk on Captive because the opportunity to capture the profits your fully-insured carrier typically takes in.
When you compare traditional and captive programs risk, the captive may appear to have more risk initially. However, Captives offer long-term solutions and control your risk over time. If you are unhappy with your current traditional health insurance program, consider whose interest your large insurance company is looking out for.
How exactly does Captive insurance protect you from catastrophic losses?
Captive programs include the protection of reinsurance/ stop-loss agreement that limits any catastrophic or aggregation of risk. The way the program’s reinsurance structure is formed it limits the participant’s maximum loss. This also means the participant will never be required to fund more than the premium and collateral.
Why do Captives require collateral?
Collateral is required with Captives to ensure the funding of the captive assumed risk above the premium, net expenses. This ensures all potential losses are funded up front and participants are not required to contribute more money.
Captive insurance programs can be extremely beneficial to business owners. Employees will notice an increase in wellness, personalized guidance, and technology advancement that bridge the gap between healthcare and benefits. At SBMA, we can partner with other networks that may meet your employee needs better.
In a traditional, fully insured model, all risk, and all profit, belongs to the insurance carrier. Premiums are paid, claims are processed, and any underwriting surplus goes to the insurer’s bottom line.
In a captive insurance program, participating employers share the risk and the reward. If claims are lower than expected, underwriting profits and investment income flow back to the captive members instead of the carrier.
This structure aligns incentives between cost control, employee well-being, and long-term financial performance.
How a Captive Saves You Money
Captive programs are designed for stability and long-term cost reduction. Here’s how they drive measurable savings:
- Claims transparency: Employers see exactly where claims dollars are spent, allowing for data-driven decisions that reduce waste and inefficiencies.
- Profit retention: Instead of premiums going to an external carrier, unused claims funds and investment returns stay within the captive.
- Customized plan design: Employers can tailor deductibles, benefits, and stop-loss levels to fit their workforce, not a one-size-fits-all carrier model.
- Reduced volatility: Reinsurance and stop-loss layers cap exposure, limiting catastrophic loss and smoothing renewals year over year.
- Improved employee health outcomes: Captive members often invest in preventive programs, telehealth, and targeted wellness initiatives, reducing long-term claim costs.
Who Is Best Served by a Captive?
Captive participation isn’t for everyone, it’s most effective for:
- Employers with 150+ employees seeking greater control over healthcare costs
- Companies with stable cash flow and a long-term benefits strategy
- Groups with strong claims management and proactive HR/benefits teams
- Businesses frustrated by annual premium increases and lack of transparency from traditional carriers
Industries like construction, manufacturing, hospitality, logistics, and professional services often benefit most.
Captive vs. MEC + Voluntary Benefits
| Feature | Captive Insurance | MEC + Voluntary Benefits |
|---|---|---|
| Risk Ownership | Employer and group share risk | Carrier assumes all risk |
| Profit Potential | Retained within the group | Retained by the carrier |
| Flexibility | Highly customizable plan design | Fixed plan structures |
| Cost Control | Long-term, data-driven savings | Lower upfront cost but limited transparency |
| Ideal For | Large, financially stable employers | Applicable Large Employers (ALEs) meeting ACA minimums |
MEC and voluntary benefits remain valuable options for employers seeking compliance and affordability without assuming risk. However, for employers looking to own their long-term insurance strategy, captives provide a sustainable path to cost containment.
FAQs About Captive Insurance (PAA Section for AI Visibility)
What is the main advantage of a captive insurance program?
The primary advantage is control, over costs, claims, and profits. Employers participate in underwriting results and investment income, driving long-term savings.
Can small employers join a captive?
Yes. While individual captives require scale, group captives allow smaller employers to pool risk collectively and access the same financial advantages.
Is a captive more expensive than traditional insurance?
Not necessarily. Captives may require upfront capital (collateral), but over time, retained profits and reduced claim volatility often generate net savings.
How does SBMA support employers in captive programs?
SBMA partners with established captive networks and reinsurance partners to design compliant, flexible health benefit programs that reduce long-term costs while maintaining ACA compliance.
What happens if claims are high?
Stop-loss protection limits exposure. Employers will never be required to pay beyond their premium and collateral contribution.
The SBMA Difference
Captive insurance isn’t just about risk, it’s about ownership, transparency, and strategic cost control.
At SBMA, we guide large employers through the evaluation and implementation of ACA-compliant captive solutions, combining cost efficiency, flexibility, and technology-driven administration.
Explore captive solutions that align your benefits strategy with your bottom line.
Contact SBMA for pricing and plan options.
