What is the purpose of an insurance captive?

Insurance captives are special types of insurance companies specifically designed to help businesses obtain insurance coverage that might not otherwise be available in the traditional insurance market. Essentially, an insurance captive is a company set up to assume the risks of an insured business’s operations, such as product liability or employee injury claims. In South Dakota, captives must be organized as a South Dakota corporation and licenses through the South Dakota Department of Insurance. The captive company pays for losses and expenses incurred by the parent company, while the parent company pays premiums to the captive just like it would to a traditional insurance carrier. Because the captive company is owned by the parent company, the premiums it pays to the captive do not go to an outside insurer, but are retained within the company. This provides the captive with greater control over how claims are handled and allows the captive to offer favorable terms not available in the traditional insurance market. The purpose of an insurance captive is to provide a company with greater protection and control of their risk than might be otherwise available. This additional protection and control of risk can help companies save money by eliminating costly premiums and provide greater financial security if a large claim is filed against the company. Insurance captives can also provide access to markets and services that might not otherwise be available due to the size of the parent company.

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What is the purpose of an insurance captive?

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