Group Captives & Alternative Insurance Solutions

A group captive, also known as an alternative insurance solution, is a member-owned company that is fronted by an established insurance company. A member-owned group captive insurance company is formed by multiple companies, often within the same industry, to insure the risk of their collective businesses. In a group captive, premiums are based on your own company’s claims history not market swings. If your claims are low, then your premiums are low. The unused premiums are distributed back to the group captive member owners in the form of dividends.

It is common for companies with low claims history to save up to thousands of dollars on their premiums by switching to a group captive. There are two reasons for this. First, the premiums paid by the members is based on the individual member company’s claims history. Second, premiums are significantly reduced when the fronting insurance company’s loading costs are excluded from the equation. In addition, with a captive, unused premiums are paid back to the member in the form of dividends, unlike traditional insurance premiums where the investment income is retained by the insurance company.

A group captive typically has a significantly lower capital requirement than a single-parent captive. Member companies are required to make a one-time capital investment for group captive ownership, typically in the range of $25,000 to $36,000 per member. This money would be invested on the members behalf earning investment income which would be incorporated in the returns over time. There is also an expectation that the member will remain in the group captive for at least three to five years.

Yes, there are typically tax benefits for belonging to a group captive as long as the group captive meets IRS guidelines. Since there is shared risk with members of the group, premium and assessment dollars are typically tax deductible. Your accountant can advise you on the potential tax benefits of belonging to a group captive.

Yes, there are administrative expenses involved with running a group captive. However, since these costs are shared across the member companies within the group captive, they are typically less than the savings achieved from the lower premiums.