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What is Captive Insurance?

Todd Carter

What is Captive Insurance? 

When one or more parent companies from an insurance company to handle their own risks, that is called a captive arrangement. Even though the parent insurers are typically not insurance companies, the captive has to conform to the insurance rules of its state or another domicile. In most cases, companies set up these captive arrangements for their own use. However, it isn't unheard of for these companies to actually provide coverage outside of the parent. One example might be using the captive insurer to also provide certain coverage for customers of the parent company, but there are others.

The idea of captive insurance companies isn't really new. In fact, the concept has been used for more then a century. However, the number of captive insurers has boomed in the last few years. According to the National Association of Insurance Commissioners, there were 1,000 captive insurers in 1980 and more than 5,000 today. With the increasing number of captives, there has also been increased scrutiny from governments to ensure compliance with both financial and safety rules.

What is Captive Insurance Used For?

There are all sorts of captive arrangements these days. However, the traditional use of this kind of insurance subsidiary is as a form of self-insurance for parent companies. These parent companies may hope to save money, enjoy more control over their risk management, and tailor coverage to their exact needs in a way they can't with a regular commercial insurer. In some cases, companies may also set up a captive arrangement to enjoy some tax advantages. 

Risk Management Software and Captive Insurance Companies

These days, captives and their parent companies face some common challenges:

  • Meeting increased pressure from regulatory and corporate governance compliance demands
  • Satisfying growing demands for financial reporting to the parent company
  • Supplying actuaries and commercial carriers with data
  • Fulfilling increased risk management requirements
  • Meeting and documenting parent-company expectations and strategic goals

The problem is that many captive insurance companies still try to satisfy these increasing demands with the sorts of improvised solutions that might have worked in the past when the company was smaller and the demands for regulatory compliance were milder. This means that data may be drawn from a variety of local computer systems, spreadsheets and even emails. In this increasingly complex business environment, these traditional ways of collecting data are inadequate. They are too slow and usually rife with errors.

To meet financial and regulatory requirements, captives need rapid access to quality data and streamlined business systems across both the parent company and the captive insurance company. A modern risk management information system satisfies the need to consolidate quality data all in one place. This helps parents and captives access this data very rapidly and in a variety of reporting formats.

Again, there are many different kinds of captive arrangements these days. Also, reporting and risk management requirements of different kinds of companies will vary. That's why it is so important to implement a risk management information system that can be tailored to the needs of the unique organization.

Ventiv Technology Solutions for Captive Insurance Companies

At Ventiv Technology, we have four decades of experience in risk management automation. Our global enterprise risk management solutions streamline risk management and safety for hundreds of companies with hundreds of thousands of employees. To learn more about the many benefits of our risk management information system to both parent companies and captives, please download this free guide: "The Captive Insurance Company's Guide: Overcoming Data Challenges in a Regulated Environment." We'd also like to invite you to browse our extensive, free resource library that can help you learn more about the benefits of ERM software.


3Sixty Magazine

Aug 7, 2015

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