TYPES OF CAPTIVES
To better grasp the benefits of group captive insurance, it is important to understand that there are a variety of types of captives developed to deliver specific benefits to specific business types.
An insurance captive created to manage the risks of one business. These are sometimes referred to as “pure captives”. The insured business is responsible for all the captive management and maintenance. Significant financial resources are required to establish a single parent captive.
A rent-a-captive is created by a firm that puts up the capital to establish the captive company and then “rents out” space in the captive for a fee. This can be a good option for a business with a good safety record that lacks the resources to establish a single parent captive or to qualify for a group captive.
Self-Insured Groups vs. Group Captives
While not a type of captive insurance, this insurance vehicle is often confused with group captive insurance, even by insurance professionals. With a self-insured group, members enter into a joint and several liability contract which deems all participating members equally responsible for all claims. And when a group member goes out of business, the remaining members continue to be responsible for any unpaid claims. This greatly increases the potential liability of all members.