Richard Keller

Five Myths About Captive Insurance Even if you’ve come across captive insurance online, the concept might still be unfamiliar. Simply put, captives are self-funded insurance models that allow businesses to finance their own risk. In doing so, they offer greater control over claims, dividends, and risk management strategies. To clarify what captive insurance really entails, here are five common myths—and the facts behind them. 1. Myth: Captive insurance is a scam. Fact: The captive insurance industry began in the early 1950s with the formation of Steel Insurance Company of America. Today, there are nearly 7,000 of these regulated entities across the globe used by businesses of all sizes. 2. Myth: It’s like a whole insurance policy. Fact: Although captives have a monetary component, health coverage for businesses is their main responsibility, and its cash dividend does not affect a policy’s benefits. Unlike whole life policies, where decisions are made by proxy, captive participants typically serve on the board, giving them direct input on program offerings and premium structures. 3. Myth: Captive insurance is not subject to government standards. Fact: Captives are subjected to state regulations like commercial insurers. As a result, they are subject to regular reporting requirements and audits. On top of this, captives must maintain a minimum level of capital and cash reserves. 4. Myth: One company handles every captive insurance policy. Fact: Captive structures vary. A single business might form one to gain cost control and greater influence over coverage. Conversely, multiple organizations in the same industry may come together to form a group captive, pooling resources while customizing their risk management. 5. Myth: Captive insurance is expensive. Fact: While setup fees may be costly, a captive’s return on investment is greater than a commercial firm. Through guidance from captive managers and consulting firms, organizations can design coverage tailored to their needs and risk profile, often at lower long-term costs.