What is the difference between captive and excess insurance?

The difference between captive and excess insurance is based on when an insurance claim is paid out. Captive insurance is when the claims are paid out from the original insurance policy, while with excess insurance, the claim is paid out when the original policy limits have been exhausted. In Texas, captive insurance companies, also known as captive insurers, are insurance companies that are formed by a parent company to provide insurance coverage specifically for the parent organization. Captive insurers are used to insure risks that are not covered by traditional insurers or when the parent organization wishes to have more control over the insurance products. On the other hand, excess insurance is insurance coverage that is purchased to provide additional protection when the limits of the primary insurance are reached. Excess insurance is purchased to absorb claims costs that are higher than the primary insurance limits. An example of this is when an insurance company purchases a primary policy with a $1 million limit and then buys an excess policy with a $2 million limit. In this instance, the excess policy is activated when the $1 million limit has been exhausted. In Texas, captive and excess insurance policies are both subject to the same regulations and must meet the same standards. Such standards include minimum capitalization requirements, specific policy form file maintenance, and annual financial statement filings. Furthermore, captive and excess insurance companies must be licensed through the Texas Department of Insurance.

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