Your clients are likely frustrated with the traditional insurance market, especially when, year after year, premiums go up, transparency stays low, and they have almost no control over their policies. It’s no surprise they’re looking for a better option.
Captive insurance can offer that control they’re looking for. However, captive insurance is not for everyone. That’s why you want to figure out if they’re a good fit.
At Captive Coalition, we work exclusively with independent agents to help their clients access, evaluate, and enter the right captive structures. We’ve helped more than our fair share of agents identify clients who are successful captive owners. We also know when it’s not the right fit for some clients.
In this article, you’ll get a full breakdown of how captives work, what the benefits and drawbacks are, and how to know when your client is a strong candidate. That way, you can bring real value to your clients, protect your best relationships, and strengthen your book of business.
What Exactly Is Captive Insurance?
Before you can determine if a captive is a fit for your client, it helps to break down what it actually is.
Captive insurance is a form of self-insurance where your client owns the insurance company. Instead of paying premiums to a third-party carrier, they set up a captive to insure their own risks. It gives them more control, transparency, and long-term cost stability.
There are a few different structures your client might fit into:
- Single-Parent Captive: Their business forms and owns the captive outright to insure only its own risk.
- Group Captive: Multiple businesses with similar risk profiles come together to share risk and pool resources.
- Cell Captive: A shared infrastructure where each business has its own “cell” with individualized risk strategies.
There’s also medical stop-loss for employee benefits, where captives can provide protection for major medical claims with more cost control.
If your client is exploring any of these models, be sure to check out our breakdowns on Single-Parent, Group, and Cell Captives for more clarity.
Determining If Captives Are Right for Your Client’s Business
Captives aren’t a fit for every client. You don’t want to recommend one unless the fundamentals are there. Here’s what you should evaluate before moving forward:
- Annual Insurance Spend: Captives generally make sense for clients spending at least $250,000 annually on combined premiums for workers’ comp, general liability, and auto liability. If they’re under that, it’s probably not worth it.
- Entrepreneurial Mindset: Clients who are open to innovative solutions and want more control over their operations tend to do well in captives. This isn’t for clients who just want to cut a check and move on.
- Frustration with the Traditional Market: If your client is tired of rising premiums and opaque pricing, that’s a signal they’re ready to explore alternatives.
- Commitment to Risk Management: Captives reward safety and discipline. If your client is serious about improving safety practices and lowering claims, the financial benefits are real.
- Desire for Control and Transparency: Captives give your client visibility into exactly where their money goes. If they value control over outcomes, they’ll likely appreciate what a captive offers.
- Industry Fit: Industries like manufacturing, transportation, and distribution often have the risk profiles that work well in captives. But don’t rule out others—professional services can also benefit from the right structure.
Help your clients self-evaluate with these factors to see if they’re truly a fit for captives. Use our Captive Insurance Prequalification Checklist to see if your clients are a good fit for captive insurance.
What Are the Advantages of Captive Insurance for Your Clients?
If your client is a good fit, captives can provide serious advantages that go beyond what the traditional market can offer:
- Control and Transparency: Your client has more say in underwriting, claims handling, and risk strategy. They know where every premium dollar goes and they have a direct impact on their insurance outcomes.
- Potential Cost Savings: Businesses that manage risk well often see a 28% reduction in premiums within the first 2–3 years. The total cost of risk can drop by as much as 50% over time with strong safety performance.
(Note: Even the best-run captives experience a bad claims year every five or six years. That’s normal.) - Stability: Captives offer more stable pricing. They’re not subject to the same rate swings or unpredictable renewals.
- Customized Coverage: Captives allow insurance programs that match your client’s specific needs, including niche or hard-to-insure risks that the standard market ignores or overprices.
- Profit Retention: When claims are low, underwriting profits stay with your client—not the carrier. That’s a real financial incentive for strong risk management.
If you’re helping a client who’s ready to think long-term and prioritize control, captives offer a strategic edge.
If you think your client might be ready for a captive, prequalify your client to see if they can be approved for a captive early.
The Disadvantages of Captive Insurance for Your Clients
Captives offer a strong upside, but they’re not without real considerations. Here’s what to help your client understand upfront:
- Initial Costs: Starting or joining a captive isn’t cheap. They’ll need to invest in feasibility studies, regulatory compliance, actuarial services, and collateral—often up to 80% of their first-year premium. That capital stays locked in the captive for several years.
- Long-Term Commitment: Captives aren’t for clients who want quick fixes. They require a multi-year mindset. If your client wants to leave, they can—but it’s a process, and their invested capital stays until all policy years are closed (usually five to seven years).
- Regulatory Complexity: The IRS scrutinizes captives, especially if the intent looks tax-driven. Your client must demonstrate legitimate insurance activity. Captive compliance varies by domicile (onshore vs. offshore), and every jurisdiction has its own playbook.
- Operational Burden: Clients don’t have to manage the captive daily, but they do need to participate. That means attending board meetings, reviewing risk data, and being part of strategic decisions. If your client wants zero involvement, this may not be the right route.
As the saying goes, “If you’ve seen one captive, you’ve seen one captive.” Each one is unique, and your client needs to be ready for that reality.
Common Misconceptions About Captive Insurance
Your clients are going to have questions. And if they’re less familiar with captives, they probably have heard a few misconceptions. Here are the most common ones you’ll need to address:
- “My business isn’t big enough.”
Captives aren’t just for Fortune 500s anymore. With structures like group captives, small to mid-sized businesses can now participate and benefit. If your client spends $250,000 or more in annual premiums, they’re likely big enough. - “A large claim will bankrupt us.”
Captives are structured to manage large claims, especially group captives that spread risk across members. Even in single-parent captives, reinsurance layers protect against catastrophic losses. - “We’ll save a ton in taxes.”
That mindset is dangerous. While some tax benefits may exist, they should never be the driving reason for entering a captive. The focus should always be on control, transparency, and better risk outcomes. Not tax plays. - “We’ll lose the protection of a traditional insurer.”
Not true. Captives often work alongside traditional carriers through reinsurance arrangements. Your client still has the backing of big-name insurers for major claims—they just get more control on the front end.
To further understand these and other false beliefs, check out our article: Top 3 Misconceptions About Captive Insurance.
So, Is Captive Insurance Right for Your Client’s Business?
Captives are a powerful tool, but only when your client is the right fit. They offer transparency, cost control, and long-term risk stability. But they also demand commitment, financial investment, and a proactive approach to risk.
If your client is entrepreneurial, frustrated with the traditional market, and serious about managing their risk, then yes, captive insurance could be exactly what they need.
Before moving forward, check out Pros and Cons of Single-Parent and Group Captives to better understand which structure may align best with your client’s goals.
Want to know more about captives? Want to make it easier to help clients? Become a member of Captive Coalition for FREE to access additional tools, resources, webinars, and training.
