What Is a Captive, and How Is It Different from Traditional Insurance?

In the evolving landscape of risk management and insurance, more organisations are exploring alternative solutions to take greater control of their coverage. One increasingly popular option is a captive insurance company. But what exactly is a captive, and how does it differ from traditional insurance?

At Capvartis, we specialise in helping organisations evaluate, establish, and optimise captives through our platform, CaptiveIQ. Below, we break down the essentials of captives and explain why more businesses large and small are considering them as part of a modern risk strategy.

What Is a Captive Insurance Company?

A captive is a licensed insurance company formed by a business or group of businesses to insure their own risks. Instead of purchasing coverage from a third-party insurer, the business creates its own insurance company to underwrite its risks directly.

Captives are often formed for strategic, financial, and operational reasons, including cost control, risk management, and access to coverage that may not be readily available or affordable in the commercial market.

There are various types of captives, including:

• Single-parent captives (owned by one company)

• Group captives (owned by multiple companies)

• Rent-a-captives (where businesses “rent” the infrastructure of an existing captive)

• Protected cell companies (which offer legal separation of assets and liabilities between different cells)

Key Differences Between Captives and Traditional Insurance

Why Choose a Captive?

Organizations often turn to captives when:

• They face high or volatile premiums in the commercial market

• Coverage is unavailable or insufficient for certain risks (e.g., cyber liability, emerging risks)

• They want to benefit from underwriting profits and investment income

• They are committed to proactive and disciplined risk management

Captives can also offer tax efficiencies, greater data insights, and better alignment between risk financing and risk control.

Is a Captive Right for Your Business?

Not every organisation is a good candidate for a captive. The decision depends on various factors, including size, risk profile, loss history, and long-term strategic goals.

That’s where Capvartis comes in. Our CaptiveIQ platform simplifies the feasibility process, guiding businesses through actuarial analysis, financial modeling, domicile selection, and regulatory review so any size of business can make informed, confident decisions.

Conclusion

Captives represent a powerful tool in the modern risk manager’s toolkit. By giving businesses direct control over their insurance programs, captives create new opportunities for savings, stability, and strategic advantage.

Whether you’re new to the concept or considering forming your own captive, Capvartis is here to help.

Want to explore if a captive is right for you?

Contact us or request a demo of CaptiveIQ today.