Why Move a Large Account From the Standard Insurance Market?

Most independent agents are comfortable with the standard insurance market, so why move a large account from it when it seems competitive? As a trusted advisor, your goal is to provide the best long-term solution, not just the easiest one. Clients want the best solution for their needs. In contrast, the standard market may seem like a good fit today; exploring captives could offer your client more control, better alignment with their risk profile, and potential cost savings over time. Understanding both options ensures you’re giving your client the most informed recommendation, keeping you at the forefront of their trust.

Our sole purpose at Captive Coalition is to help independent agents understand captive insurance. We know both sides of the market and what each can offer your best clients. 

In this article, we’ll explain if, when, and why moving a large account from the standard market makes sense, what agents should consider before making the switch, and how captives compare financially to the standard market.

Why Competitive Pricing Isn’t the Whole Picture

Focusing solely on price may seem logical, but it’s only part of the equation. In the standard insurance market, your client's premiums are driven by the performance of an entire risk pool. If other businesses in that pool have poor loss histories, your client may pay more—even if they have a stellar safety record. They feel they’re paying for others’ mistakes, not just their risks.

With captive insurance, the risk is shared among like-minded businesses with a similar commitment to safety and loss prevention. This setup allows your client to avoid subsidizing the poor performance of others and gives them more say in how their premiums are used. It’s about offering them control and transparency that the standard market cannot match.

The Financial Benefits of Moving to a Captive Insurer

One of the biggest misconceptions about captives is that they are too risky or expensive upfront. While the initial costs of captives—such as collateral—may seem daunting, the long-term financial benefits can far outweigh the upfront investment. Here’s why:

• Profit Sharing: In a captive, your client can share in the underwriting profits, reducing net insurance costs over time. In the standard market, those profits stay with the carrier.
  
  
• Stable Premiums: Unlike fluctuating premiums in the traditional market, captive premiums are directly tied to your client’s performance, offering greater predictability and stability.
  
  
• Lower Administrative Costs: Captives streamline the insurance process, reducing the time spent on renewals, marketing, and juggling multiple carriers, saving time and money.

Introducing these financial benefits to your client reinforces your role as their advisor, focusing on long-term savings and control.

Use our captive pricing calculator to see the financial benefits captives can offer.

When Captive Insurance Makes Sense for Large Accounts

Captives aren’t the answer for every client, but they’re ideal in several situations, such as:

• Safety-Conscious Clients: Clients prioritizing safety and loss control are often frustrated with the standard market because they pay the same premiums as less diligent businesses. Captives reward good safety practices by offering lower premiums and higher profit potential.
  
  
• Premiums Over $250,000 Annually: Captives make sense for clients paying significant premiums across workers' compensation, general liability, and auto liability lines. Captives offer these clients more significant savings over time as their premiums directly reflect their performance.
  
  
• Frustrations with Lack of Transparency: If your client is tired of not knowing where their insurance dollars are going, a captive provides complete transparency, allowing them to see exactly how their money is spent and giving them input on risk management practices.

Are you unsure if your client is a good fit for a captive? Use our assessment tool to determine.

How to Evaluate a Client’s Suitability for a Captive

Before recommending a captive to your client, consider these basics:

• Loss Sensitivity: Does your client understand the importance of controlling losses? Clients actively engaged in risk prevention and safety will likely benefit most from a captive.
  
  
• Claim History: Clients with a good loss history—low frequency and severity of claims—stand to gain the most from captives.
  
  
• Size of the Account: The captive model can maximize the financial leverage of large accounts, particularly those paying $250,000 or more in annual premiums.

Assessing these basics ensures captives are the right fit and further solidifies your role as the advisor they can trust for sound financial decisions.

Overcoming Common Independent Agent Concerns

Many agents hesitate to introduce captives to their clients because of the potential loss of contingency fees from the standard market or a lack of familiarity with captives. Here’s how to address those concerns:

• Income Considerations: While you may lose out on standard market bonuses, captives offer a more predictable and transparent fee structure. Plus, retaining clients by providing them with a solution that fits their needs keeps them from exploring options with your competitors.

• Educational Gaps: Captives can seem complex, but with the proper training and resources, you can confidently discuss captives with your clients. This expertise will set you apart from other agents and elevate your status as a trusted advisor.

When Captives May Not Be the Right Fit

While captives offer significant advantages for the right businesses, they aren’t always the best solution for every client. It’s essential to recognize when the standard market might be a better choice:

• Cash Flow Constraints: Captives require an initial collateral investment, which can financially burden businesses with limited cash flow. If your client can’t comfortably allocate the upfront capital, a captive may not be viable.
  
  
• Inconsistent Loss History: Captives reward companies with solid risk management practices. Clients with frequent or severe losses may not benefit from a captive’s reward structure and could pay more.
  
  
• Short-Term Outlook: Captives are a long-term strategy, typically requiring a commitment of five to seven years. Clients looking for quick fixes may not be suited to the captive model.
  
  
• Reluctance to Change: Some businesses may not have the internal structure or appetite for change that a captive requires. Captives demand a proactive approach to risk management, and clients who are comfortable with the “set it and forget it” model of traditional insurance might struggle with the hands-on nature of captives.

When It’s Time to Make the Move

The decision to move a large account from the standard market isn’t just about saving money. It’s about finding the best solution for your client’s unique needs. If your client values control, transparency, and long-term financial stability, it is likely in your client’s best interest. They’ll need to understand both the risks and rewards—and you’ll guide them toward the best choice.

Read our Captive Insurance 101 Guide and explore the financial pros and cons to educate your clients better.

If you have any other questions or want to schedule a consultation, click the button below to speak with one of Captive Coalition’s captive consultants.