Why Would My Client Be Asked to Leave a Captive Insurer?

Joining a captive is one thing. Your client puts in the work to become a captive owner. But you’ve got to wonder: what if they’re asked to leave?

Let’s get to the point: Yes, your client can be asked to leave a captive insurer. But it’s rare. They’d have to be seriously negligent or disruptive. More often, businesses choose to leave on their own terms. As long as your client manages risk well and plays nice with others, they’ll likely be just fine.

Captive Coalition’s sole purpose is to educate independent agents about all things captive insurance to retain their best clients. We understand why businesses join, why they might choose to exit, and, in rare cases, why they’re asked to leave.

This article breaks it down so you, as their agent, understand what might trigger a departure, whether it’s voluntary or not. That way, you can better advise your clients on whether captive participation is right for them and what to look out for if problems arise.

Why Would a Client Leave a Captive Insurer?

There are plenty of reasons a business might leave a captive. Yes, they can be asked to leave. However, in most cases, they exit by choice. Here are the main reasons your client might leave or be removed from a captive program:

• Acquisition: This is the most common scenario. If your client’s company is acquired by a larger business, that parent company may already have a captive in place. Rather than maintaining two, they’ll consolidate and run off your client’s policies.
  
  
• Business Model Changes: If your client enters new markets, restructures operations, or shifts risk in ways that no longer align with the captive’s goals, it might make more sense to find a new insurance solution.
  
  
• Financial Struggles: Captives are cost-effective, but they’re not free. If your client faces serious financial setbacks—lawsuits, revenue loss, supply chain issues—they may no longer be able to keep up with contributions or risk retention. That could mean a voluntary exit or a canceled policy.
  
  
• Poor Risk Management: If your client repeatedly causes high-severity or high-frequency claims without improving safety or risk practices, they’re going to be a liability to the group. That’s a fast track to being asked to leave.
  
  
• Legal or Ethical Violations: Compliance matters. Illegal or unethical activity can get your client expelled from a captive. No questions asked.

Bottom line: Clients can be asked to leave, but most often, they leave because their business evolves, hits trouble, or willingly exits.

What Happens When a Client Leaves a Captive Insurer?

Leaving a captive isn’t complicated, but there are a few things you’ll want your client to understand.

• Termination Is Simple: Your client can notify the captive manager and initiate the exit, similar to canceling a standard insurance policy. There’s paperwork, but it’s straightforward.
  
  
• Collateral Stays Behind: Even after your client exits, the funds they contributed—especially the collateral—remain in the captive until all policy years close. That typically takes five to seven years. This ensures that outstanding claims can be handled properly.
  
  
• Claims Still Get Managed: Any claims that occurred during the policy term are still processed and paid. The captive’s third-party administrator will continue handling these until everything is closed out.

So yes, your client can leave. But getting back their full investment takes time, and it’s important they understand what stays behind after they walk away.

Why Do Most Clients Stay with a Captive Insurer?

Most businesses don’t leave a captive once they’re in. Why? Because captives work. Here’s why your clients are likely to stick around:

• Cost Savings: When a client focuses on risk management, premiums often drop over time. They’re not paying for a carrier’s profit margin—they’re keeping more of their own money.
  
  
• Transparency and Control: Clients see exactly where their premium dollars go. They’re no longer in the dark or subject to vague pricing models from traditional carriers.
  
  
• Stability: The traditional market is unpredictable—rates can spike for reasons completely unrelated to your client’s risk profile. Captives offer consistency and control, especially in group or single-parent structures.
  
  
• Profitability: If a client keeps claims low, they get to share in the underwriting profit. That’s money back in their pocket instead of padding a carrier’s bottom line.

Even with the occasional tough claims year, the long-term advantages keep clients invested. Literally and figuratively.

Should Your Client Join a Captive?

Yes, a client can be asked to leave a captive, but only if they’re negligent, disruptive, or no longer fit the structure. Most businesses leave because of changes, not because they’re forced out.

Your job is to help them decide if a captive is the right fit in the first place. Understanding what could cause an exit—voluntary or not—puts you in a position to help with that decision.

Captive Coalition exists to equip independent agents like you with the knowledge and tools to retain your best clients through better insurance solutions. If you’re helping a client evaluate captive participation, or if they’re already in one and you want to understand the risks of exit, we can help.

Next up: Read our article on how to identify your best clients for a captive insurer to learn more about the types of captives, how they work, and how to spot a great fit.

Want to learn more about captives? Become a member of Captive Coalition for FREE to access additional resources, tools, webinars, and training to help your best clients and improve your book of business.