For large corporations and mid-market firms with specialized risks, the traditional insurance market can be inefficient and overpriced. This has led to the surge of Captive Insurance Companies—a form of self-insurance where the insured creates its own insurance subsidiary.
Strategic Benefits of Captivity
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Tailored Coverage: Captives can cover risks that commercial insurers refuse to touch, such as specific supply chain disruptions or unique environmental liabilities.
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Direct Access to Reinsurance: By owning a captive, a corporation can bypass retail brokers and access the wholesale reinsurance market directly, significantly lowering costs.
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Profit Retention: If the corporation manages its risks effectively, the underwriting profits stay within the organization rather than going to a third-party insurer.
Domicile Selection and Compliance
Choosing the right domicile (e.g., Vermont, Bermuda, or the Cayman Islands) is critical for tax efficiency and regulatory compliance. The legal fees and consulting costs associated with setting up a captive make this one of the highest-paying keywords for advertisers in the legal and financial sectors.
