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5 Key Questions: Is Captive Insurance Right For You?

Is captive insurance right for you?If your firm has been thinking about forming (or joining) a captive insurance company, you are in good company.

Under the right circumstances, a captive can provide a host of benefits. If you answer “yes” to one or more of the following questions, it’s likely that a captive insurance company can be right for you.

  1. Is Insurance A Significant Cost? – To overcome start-up costs and on-going operating expenses, most captive programs make sense only for firms now paying premiums of $1-million-plus annually. Firms paying annual premiums significantly higher are, of course, more likely candidates for self-insurance.
  2. Do You Have Minimal Losses? – An ideal candidate for a captive program is a firm with a good historical loss experience, yet is still experiencing annual premium increases. While most insurance buyers feel they are being overcharged, often a detailed loss analysis shows that this might not be the case.
  3. Can You Affordably Cover All Risks? – Industries (or insurance lines) out of favor with the commercial market are good candidates for captive insurance. For example, medical malpractice insurance is either prohibitively expensive, or is not available in amounts necessary to fully cover risks. A physicians group captive can be the right solution.
  4. Are You Comfortable With Risk? – While captives are real insurance companies, they are essentially a form of self insurance, especially for single parent captives. Unexpected losses, if they occur, will negatively impact the profits of the parent firm. So if your organization is risk adverse, a captive may not be right for you.
  5. Will a Senior Person be in Charge? – A captive is a complicated entity subject to accounting, tax, and regulatory guidelines that may be unfamiliar to the organization considering it. While a captive might make sense, many captive projects fail without a dedicated project leader with senior management credibility.

In short, forming (or joining) a captive is a complex process – and yet it can provide solid business benefits today, and tomorrow. For this reason, it is important to make sure that your firm is an ideal captive candidate – and that you are dedicated to its success.

What to consider when establishing a captive insurance entityFree Download: Captive 101 – For a complete guide to the pros and cons of establishing a captive insurance company, download “What to Consider When Establishing and Operating Captives”


Wilmington Trust neither claims to nor provides legal or tax accounting services. Clients should consult professional tax and legal advisors regarding favorable tax treatment of any particular strategy.


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