The traditional insurance market is filled with complexities and limitations that leave your clients frustrated and looking to you for solutions. They feel like they’re stuck with no control or transparency. And they’re asking, “There’s gotta be something better out there. But is captive insurance actually riskier than what they have now?”
At Captive Coalition, we work exclusively with independent agents to help their clients evaluate, access, and enter the right captive structures. We make sure you have the full picture so you can give your clients good advice on whether or not a captive is the right fit.
In this article, you’ll get a breakdown of where the real risks lie in captive insurance, how they compare to traditional coverage, and what it takes for your client to succeed. That way, you can bring clarity to the conversation, provide sound advice, and maintain your book of business.
Are captives riskier than traditional insurance?
Yes, captives come with more risk. But that doesn’t mean they’re a bad choice. It means your client needs to be ready to manage that risk well. When they are, the upside can be significant.
Captive insurance gives business owners more control over their premiums, claims, and long-term insurance strategy. But that comes with greater responsibility. Captive members retain a portion of that risk. That’s what creates the opportunity for savings and keeping the underwriting profit.
As their agent, your job is to help them weigh that tradeoff. The question isn’t just “Is it riskier?” The question is, “Is your client ready to take control, manage risk effectively, and reap the rewards?”
Where exactly is the risk with a captive?
In traditional insurance, your client transfers all risk to the carrier along with the opportunity for profit. The carrier takes the premiums and, in exchange, assumes the full financial risk. This model is simple, but it also locks your client into a system where they have little control and even less transparency.
With a group captive, the members share risk but also share in the rewards. Lower costs, underwriting profits, and investment income can all come back to your client instead of going to the carrier. But they need to be ready for the responsibilities that come with ownership.
The two most common reasons businesses struggle in a captive are:
- Undercapitalization — not committing enough resources upfront.
- Owner disengagement — treating the captive like a passive investment rather than a strategic tool.
Is there any single factor that impacts the level of risk with a captive?
The biggest variable is your client’s level of preparedness. A captive is riskier if your client walks into it without understanding what it takes to succeed. Your client owns their own risk.
If your client is committed to strong risk management, financially stable, and willing to stay actively involved, they’ll be able to benefit from the captive model. But if they’re looking for a shortcut or a passive investment, a captive will likely become a liability.
For agents, it’s about helping clients see what it takes to be a captive owner: Control comes with responsibility, and those who embrace that responsibility can win.
What does the business owner need to bring to the table?
A strong captive owner is someone willing to step up. Your client will need:
- A clear understanding of risk financing.
- Access to capital to cover potential losses beyond the premium (usually an additional 20-40%).
- A solid loss history and/or the commitment to invest in improving risk management.
- Enough premium spending to make the economics of the captive worthwhile.
- A real need for better insurance capacity and coverage.
In short, captives are for entrepreneurial clients who want control and are willing to put in the work to get it.
You might be wondering if your best clients are ideal captive owners. Use the Captive Insurance Assessment tool to see how they could perform.
Should Your Client Consider a Captive?
Captives aren’t for everyone. But for clients who are serious about safety, want control, and are prepared to take on more risk in exchange for long-term savings and stability, captives are worth considering.
Help your clients weigh the pros and cons of captives to see if it’s right for them by reading the financial advantages and disadvantages of captive insurance.
Want to learn more about how captives work and how to help your clients make the right call? Become a member of Captive Coalition for FREE and access tools, resources, and training made for independent agents like you.
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