You might be wondering, “What industries work best for captives? Does my client’s line of business work for a captive?” You can see how they’re affected by their industry in the traditional market. You want to ensure your client is in a good industry that works well with captives.
Here’s what you need to know: While some businesses work better in captives than others, captives aren’t limited to specific industries. Instead, the best candidates share key characteristics outside of their line of business. They all have strong risk management, predictable losses, and desire more control over their insurance costs. These factors open more opportunities than chasing a list of industries.
At Captive Coalition, our sole purpose is to educate independent agents and help them understand how their clients can qualify for captives. It will always be looking for businesses with the right structure and mindset rather than chasing a specific industry.
By the end of this guide, you’ll understand what makes a business captive-ready. We’ll cover:
- The core traits a business needs to qualify.
- Why certain lines of insurance (not industries) work best.
- The documentation required to assess a captive fit.
What Makes a Business a Strong Candidate for a Captive?
Many agents may assume that only specific industries qualify for captives. This isn’t the case. The best candidates share similar traits, regardless of industry.
Characteristics of a Captive-Ready Business
- Predictable Risk and Losses: Businesses with stable claims history and controlled risk exposure are ideal. Captives rely on predictability. So, businesses with wildly fluctuating losses or clever claims are less likely to qualify for captives.
- Strong Risk Management: Captives work for businesses that actively manage risk through safety programs, loss prevention, and compliance efforts. The lower the frequency of claims, the more profitable a captive is to your client.
- Financial Stability: A business must have the financial capacity to fund a captive, which typically requires at least $250,000 in annual premiums. A business struggling with cash flow will likely struggle to get into a captive, especially when it needs a higher upfront cost when you add in collateral.
- Desire for Long-Term Cost Control: Businesses that benefit the most from captives are sick of market cycles and rising premiums. They want more control over how their insurance dollars are used and are willing to take on some risk in exchange for long-term savings.
Still not sure if your client qualifies for a captive? No worries! Use our prequalification form to see if captives would work well for them.
Industry vs. Business Characteristics: What Matters More?
Short answer: Business characteristics.
Long answer: Some industries can naturally fit well in captives, but what matters more is how the business operates. What it does is way less important.
For example: a construction company with a strong safety record and consistent claims history is a better captive candidate than a manufacturer with unpredictable losses. Agents should focus on how well the business manages risk and insurance costs.
You can use our Captive Insurance Prequalification Checklist to help prequalify your clients.
Which Insurance Lines Work Best in Captives?
Captives are about insuring the right types of risk. The best businesses for captives are those that are predictable, frequent, and manageable over time.
Three Core Insurance Lines for Captives
- Workers’ Compensation: Nearly every successful captive includes workers’ comp. It’s highly regulated, has abundant data for predictability, and businesses have direct control over claims through safety programs.
- Auto Liability: Commercial fleets, trucking companies, and businesses with significant vehicle exposure benefit from captives because auto liability tends to have a higher premium in the traditional market, even with low claim frequency.
- General Liability: Broad and flexible, general liability is essential for captives. Businesses that actively mitigate risk (like contractors, manufacturers, and service providers) can turn traditional premium costs into long-term savings with captives.
Why Frequency Claims Matter More Than Severity
Captives thrive on low severity and have plans in place to lower the frequency of claims. Frequency claims are possible to control. High frequency can breed severity, which is a problem. A few small claims a year make costs more predictable. However, high-severity, low-frequency events make costs less predictable. This is why industries with catastrophic risks (e.g., high-rise construction or medical malpractice) require special underwriting considerations.
Where Does Property Insurance Fit Into Captives?
Property insurance is often more challenging in captives because of unpredictability. Claims follow patterns when you have workers’ comp or auto liability. The same can’t be said with property losses since they can be sudden and catastrophic. Natural disasters, fires, and other large-scale events make it harder to manage long-term risks.
When Property Insurance Can Work in a Captive
While property isn’t always the first choice for a captive, it can still be a good fit under the right conditions:
- Predictable Losses: Businesses with controlled property risks (e.g., warehouses with fire suppression systems and buildings outside catastrophe zones) are better suited.
- Diversified Risk Pools: Property captives work best when risks are spread across multiple locations, reducing exposure to a single disaster.
- Higher Deductibles and Stop-Loss Protection: To make property viable in a captive, businesses should be prepared to take on higher deductibles and use reinsurance programs to protect against large claims.
Challenges with Property in Captives
- Natural Disasters Are Unpredictable: Hurricanes, wildfires, and earthquakes can lead to sudden, massive losses, making it difficult to keep a captive profitable.
- Reinsurance Costs Can Be High: Captives often need reinsurance to offset large risks. Pricing can be volatile, especially in hard markets.
- Some Lenders Have To Allow Blanket Coverage: It’s important to distinguish between insuring portfolios with one limit versus insuring each building for 100% of the value. That is done because the likelihood of a geographically diverse portfolio having a total loss is virtually zero.
For some agents, here is the takeaway: Property captives require a different strategy. They aren’t impossible by any means. However, they need careful planning, substantial financial backing, and risk diversification to work effectively.
What Does a Business Need to Qualify for a Captive?
Captives don’t work for every business, even those that want to have more control over their insurance. That said, even if they don’t qualify today, they will be able to later. Businesses must meet clear financial and operational benchmarks.
Minimum Financial Requirements
- Annual Premium of $250,000+: For a captive to be financially viable, a business must already spend at least this amount on insurance.
- Stable Cash Flow: Captives require an upfront financial commitment, so businesses struggling with cash flow won’t be a good fit.
- One of the biggest upfront costs will be collateral, which is a line of credit or cash reserve used to secure claims payment.
Necessary Documentation
Before considering a captive, businesses and agents must provide these documents:
- Five Years of Loss Runs: Underwriters need a full claims history to assess risk.
- Five Years of Policies and Audits: Detailed past policies and audits help establish expected loss calculations.
- Documented Risk Management Practices: If it’s not documented, it doesn’t exist in the eyes of a captive. Captives want formal, written risk management programs, including safety protocols, loss prevention strategies, and claims handling processes. A business without a structured program will not be considered a strong candidate.
- If your clients don’t have documented risk management programs now, have them get on top of it so they can qualify for captives later. Captives want to see a proactive approach to safety, not just good luck.
How Claims History and Risk Management Impact Captive Eligibility
Even if a business meets the premium threshold, claims history plays a major role:
- A business with a history of manageable claims (such as auto liability or workers’ comp) is often a strong candidate.
- A business with significant or uncontrolled frequency losses would suffer in a captive.
Captives reward predictable, well-managed risk. Businesses that actively control losses, have documented policies in place, and maintain steady premiums are far more likely to benefit from captives.
Are Your Best Clients Ready for Captives?
The best businesses for captives aren’t defined by industry. The best are those with predictability, strong risk management, and a desire for long-term cost control.
Now you understand which businesses are ideal for captives. If you’ve identified who you think would be the best fit, your next step is to read our guide on how you can confidently present captives to your clients. That way, you can understand all the talking points to share with clients and use the tools provided to help clients see how they can perform in a captive model.
To access more tools, webinars, expertise, and other educational materials, become a member of Captive Coalition!