Are Captives Really the New Revenue Generator for Insurance Brokers?

Insurance brokers serving mid-market clients in industries like construction, healthcare, logistics, manufacturing, and technology are constantly facing a changing landscape. In volatile premiums, large deductibles, shrinking coverage, and tough exclusions have become common in today’s market cycles. In response, many CFO’s and Risk managers at mid-market companies are turning to captive insurance as a solution, and their forward-thinking broker partners are discovering that captives are opening up a lucrative new income stream while enhancing their role as trusted risk advisors.

This blog post explores why captives are rising in popularity and how introducing captive solutions can generate additional revenue (through commissions and fees) for brokers, all while delivering more importantly better value to clients.

The Mid-Market Insurance Dilemma

Traditional insurance is becoming less accommodating for mid-size businesses. Hard market headwinds, such as climbing healthcare costs, “nuclear” legal verdicts, cyber threats, and catastrophic weather events, have driven up premiums and reduced coverage availability. Many mid-market firms are being forced to accept higher deductibles and self-insure more risk, or live with standard exclusions that leave critical exposures uninsured. For example, a trucking/logistics company with an excellent safety record might still face exorbitant liability rates due to industry-wide accident trends or find certain coverages simply unavailable. Similarly, manufacturers and construction firms with good loss control may question why they’re paying steep premiums when they could retain predictable risks themselves.

The result is that clients retain more risk on their own balance sheets, but this comes at a cost to both client and broker. The client ties up capital for potential losses, and the broker loses out on commission since portions of the insurance program (the high deductible layers or excluded risks) aren’t being placed with insurers. In short, “lost premium” = lost commission for the broker. As one captive solutions provider notes, brokers are often limited by commissionable premium volume when clients increase deductibles or self-insure large layers.

Captive Insurance (And Why It’s Booming)

A captive insurer is essentially an insurance company owned by the insured (the client) to cover its own risks. Instead of paying premiums to a third-party carrier, the company pays premiums into its own insurance entity, often achieving tailored coverage, potential cost savings, and even profit returns if losses are low. Captives have been a staple risk management tool for large corporations for decades (about 90% of Fortune 500 companies utilise captive insurance), reaping benefits like custom coverage and lower long-term premiums. Notably, captives can even create an additional revenue stream for the parent company in the form of underwriting profit or investment income.

Historically, mid-market companies felt captives were “only for the big guys” due to the complexity and capital required to set one up. But this is changing fast. In recent years, captive solutions have become far more accessible to the middle market. Alternative risk transfer options such as group captives and protected cell captives (PCCs) allow smaller firms to essentially “rent” a cell in a captive facility rather than create a standalone captive, drastically reducing upfront costs and compliance burdens. Many domiciles have also updated regulations to accommodate easier captive formation for smaller businesses. The result: a surge in new captive formations as the hard market persists. In fact, U.S. domestic captives grew in number from 3,365 to 3,466 in 2024 (despite overall market challenges), and captives now account for roughly one-fourth of global insurance and reinsurance premium. Importantly, this growth is extending beyond large corporates into mid-market and even small businesses, bringing captives into the mainstream. 

Leading industry advisors confirm this trend. Willis Towers Watson’s 2025 market outlook notes that alternative solutions, such as captives, have become more prevalent in the middle market space and are continuing to be developed to fit mid-market clients’ needs. Similarly, Risk Strategies’ Captives Practice Leader observes that mid-size companies now view captives as a “Swiss Army knife” for risk management – a versatile tool to fill coverage gaps and stabilise costs over the long term. The COVID-19 pandemic further accelerated interest, after many businesses learned their insurance (e.g. business interruption coverage) had exclusions that left them unprotected. Mid-market business leaders emerged from recent crises with a greater awareness of captives as a strategic option for next time.

Turning Lost Premium into Broker Income

So, what does all this mean for brokers? In the past, some brokers hesitated to recommend captives because steering a client toward self-insurance could shrink the premium on which the broker earns commission. But the landscape has shifted, captives are no longer a threat to a broker’s revenue; they’re a new source of revenue. Brokers who embrace captives can retain business that would otherwise walk away and even get paid for facilitating these alternative risk solutions.

How is that possible? Enter the era of turnkey captive platforms and partnerships. Innovative companies like Capvartis have developed platforms (e.g. CaptiveIQ) and protected cell facilities that brokers can leverage on behalf of their clients. These platforms often pay healthy commissions or referral fees to brokers for introducing clients to captive programs. In practice, this means when a broker helps a client establish a captive (or join a cell program) to cover a layer of risk, the broker can receive compensation similar to a commission – effectively monetising what was previously uninsured (and non-commissionable) risk. As Capvartis highlights, a common pain point is that brokers’ income is limited when clients carry large deductibles or self-insure; by using a captive structure, that retained risk is converted into captive premium under the broker’s guidance, generating new commission opportunities. In other words, rather than letting that $500k or $1M layer of retained risk sit off to the side earning the broker nothing, it can be formalised through a captive insurance vehicle, keeping the premium (and its commissions) “in play” to the broker’s benefit. This is essentially found money for brokers that would have otherwise been lost in the client’s retention.

Consider a simple scenario: A manufacturing client has been taking a $1 million deductible on its property insurance because market rates are prohibitive. The broker currently only earns commission on the excess insurance above that deductible. If the broker helps the client set up a captive (perhaps via a cell facility) to insure that $1 million layer, the client pays premium into the captive (often equal to expected losses plus some buffer). Now the broker can earn commission on that captive premium or receive a referral fee from the captive program provider. The client benefits by funding their risk in a formal structure that could return unused premiums back to them as profits or surplus, and the broker benefits by recapturing revenue on a layer that previously generated no income. It’s a win-win. In fact, modern platforms are making this process fast and seamless. Capvartis, for example, can generate feasibility studies and financial models in minutes to show the client how a captive might perform, and handles the heavy lifting of implementation so the broker doesn’t need deep captive expertise.

Key Benefits to Brokers of Embracing Captives

From a broker’s perspective, advising on captives opens up multiple advantages beyond just the immediate commission on captive premiums. Here are some key benefits and opportunities that arise when brokers include captives in their toolbox:

• New Revenue Streams: Captives create additional commission and fee opportunities. By partnering with captive platforms or managers, brokers can earn referral fees and ongoing commissions for captive-related services. This diversifies the broker’s income beyond traditional policy commissions.

• Higher Client Retention: When a broker helps a client form a captive, the relationship becomes stickier. You’re no longer just a policy seller but a long-term risk management advisor. This value-added advisory deepens the client relationship and strengthens retention. Clients are less likely to move their account when the broker is managing a unique program tailored for them.

• Competitive Differentiation: In a challenging market where many brokers are offering the same standard insurance products, captives allow you to stand out as innovative and consultative. Providing alternative risk financing solutions signals that you’re looking out for the client’s best interests in creative ways. Mid-market businesses that haven’t considered captives before will view such brokers as on the cutting edge. This differentiation can open doors to new business, letting you win clients who seek more than off-the-shelf insurance placements.

• Client Savings and Improved Coverage: By filling coverage gaps and reducing total cost of risk for your clients, you become a hero advisor. For instance, a captive can cover exclusions (like certain cyber or pandemic-related losses) that the commercial market won’t. It can also return dividends or profits to the insured in good years, effectively lowering their cost of risk over time. Clients will remember that you helped them save money and solve problems that traditional insurance couldn’t – enhancing your reputation and trust.

• Maintained Control of Accounts: Brokers sometimes fear that if a client asks about captives, they’ll have to hand off the conversation to outside consultants or lose the business to a competitor with captive expertise. Not anymore. With the new generation of captive platforms, brokers can keep control of the captive feasibility and design process in-house. Tools like CaptiveIQ enable brokers to deliver professional-grade captive analysis instantly, without needing to become an actuary or a captive manager themselves. This means you don’t have to lose the client (or their captive implementation) to a third party – you can quarterback the entire solution.

• Future-Ready Advisory Services: As more mid-market firms learn about captives, they will expect their brokers to bring up alternative risk transfer options. By getting ahead of this trend, you position your brokerage as a forward-thinking advisor. You’ll be prepared when a client’s CFO or risk manager says, “We’re considering a captive – can you help?” rather than scrambling or, worse, saying “we don’t do that.” In short, captives help transform brokers into full-spectrum risk advisors who can handle both traditional insurance and alternative solutions.

Educational is the Correct Approach

To successfully leverage captives as a revenue generator, brokers should approach the topic educationally. Mid-market executives may not be familiar with captives, or they might carry misconceptions (e.g. “we’re too small for a captive”). It’s the broker’s role to demystify captives and illustrate the strategic value. Often, a feasibility study or a whiteboard session on how a captive could work for the client’s specific risk profile is an eye-opener. Focus on the client’s pain points – skyrocketing premiums, coverage restrictions, money spent on losses under a deductible – and explain how a captive can address those issues. When presented in this consultative way, the idea of a captive tends to resonate as a logical extension of their risk management, rather than a strange or risky venture.

Crucially, frame the conversation around total cost of risk and long-term benefits, not just the immediate commission aspect (that’s your upside, not the client’s concern). For example, you might point out that over the past five years, captive insurance companies have saved their owners billions in costs that would have otherwise been paid to traditional insurers. That highlights why captives make financial sense for the client. By educating clients on captives, you’re demonstrating that you put their interests first and the irony is, by doing so, you also generate new income for your brokerage. It truly can be a win-win scenario.

Embracing the Future: Brokers as Full-Spectrum Risk Advisors

The insurance industry is evolving, and brokers who adapt will thrive. Captives and other alternative risk transfer mechanisms are no longer the exclusive domain of Fortune 500 firms; they’ve “taken hold” in the mid-market and are quickly becoming part of the expected toolkit for risk management. Forward looking brokers are beginning to embrace captives rather than fear them, recognising that these structures can enhance their value proposition instead of cannibalising it. By helping a client form a captive (be it a single-parent captive, a group captive, or a cell in a sponsored facility), you demonstrate a higher level of sophistication and alignment with your client’s long-term goals.

Platforms and providers like Capvartis have made it easier than ever to bring captive solutions to mid-sized companies, handling the heavy technical lifting while compensating brokers for their role in the process. This means even agencies without in-house captive departments can confidently offer captive options. The motto from Capvartis resonates: “We believe brokers are essential to the future of alternative risk transfer” rather than bypass brokers, the best captive programs partner with them.

In conclusion, captives are indeed emerging as a new revenue generator for insurance brokers. More importantly, they are a tool for brokers to elevate their practice from transactional insurance placement to strategic risk advisory. By recapturing premium that was previously uninsured, brokers not only boost their bottom line through commissions and fees but also deliver meaningful solutions that help clients manage risk more effectively. The next time you review a client’s insurance program and see large deductibles, exclusions, or steep rate hikes, consider whether a captive could be the answer. Advising on a captive might just solidify your role as that client’s go-to advisor and add a healthy new stream of income for your firm – a true win-win in the modern insurance market.

About Capvartis:

Capvartis’s mission is crystal clear: “to close the insurance coverage gap by making captive insurance an accessible strategy for businesses no matter their size.” In practice, this means providing tools and services that dramatically lower the barriers of cost, knowledge, and time that have traditionally prevented mid-market or smaller companies from owning their own insurance company. The firm’s vision expands on this mission “no high-cost consultants, no gatekeepers, just smarter insurance on your terms”. Capvartis is building the digital infrastructure to turn captives from a slow, complex solution into a real-time, user-driven strategy for risk management. By leveraging automation and AI, Capvartis seeks to redefine risk ownership: Through our platform CaptiveIQ you can explore, structure and manage a captive at speed and at a fraction of the traditional cost.