Resources & Insights

What Are Group Captive Insurance Programs?

July 31, 2023

Gary Glader
Practice Area Leader, Safety Consulting, CCIG

As someone involved in the safety aspect of commercial insurance for many years, I’ve come to appreciate the many benefits associated with group captive insurance programs. I’ve worked with many contractors who have virtually no claims in three critical lines of coverage: workers’ compensation, general liability, and auto. Despite this success, these contractors pay large premiums relative to the amount of losses paid by the insurer.

Contractors with a strong commitment to safety are doing what they can to operate safely while managing to keep their costs as low as their competitors in the standard insurance market – and group captive programs offer a strategic advantage to companies with solid safety records.

Stepping Outside the Traditional Insurance Market

Despite their proven ability to prevent losses, many contractors still pay significantly more than some like-minded competitors. In the traditional insurance market, contractors with excellent safety records are effectively financing the insurance for those with less than successful safety programs. So, how is it possible for some with successful safety programs to pay far less than their peers pay in the traditional insurance market?

Contractors with the proven ability to prevent and mitigate losses are excellent candidates for group insurance captive programs. Group captives are a way for good contractors to reap the financial benefits of a successful safety program.

How Group Captive Insurance Works

In simple terms, actuaries determine the funds necessary to pay losses based on historical loss data. At the end of the policy period, whatever money remains in the loss fund belongs to the contractor.

Insurance companies often look at loss ratios to evaluate their profitability. A client with a loss ratio of less than 50% (typical for a good contractor) means the amount of losses paid by the insurer in a policy period were 50% of the premium paid. Again, in the simplest of terms, in a captive, the contractor will keep the difference between the premium and the amount of losses actually paid.

Benefits of Group Captive Policies

Many contractors want more control over claims handling, and group captives offer exactly that. The claims handlers answer to the group captive members and are much more accountable than the insurance carriers’ claims personnel. This often results in a reduction of the amount paid.

There are other elements of control in a captive, including the ability of captive members to approve the addition of a new contractor to the group. The reality is group captives provide successful contractors with a significant competitive advantage, and many contractors prefer not to offer a competitive advantage to an “unfriendly” or unscrupulous competitor.

Another unique advantage is group captives avoid the whims of insurance market pricing. For example, auto liability insurance rates have skyrocketed in recent years because of huge settlements. Captive pricing uses the contractor’s individual loss experience and does not include rate increases occurring in the traditional insurance marketplace.

Learn More About Group Captives

Group captives are a proven risk financing strategy successful contractors use to improve profitability and their ability to competitively bid work, exercise greater control over the claims process, and are perfect for those who contributed to the profitability of traditional insurers year after year. Yes, there is some level of risk involved in group captives, but for contractors with a proven ability to control losses and a strong commitment to safety, the benefits often outweigh the risks.

If you have questions about group captives, reach out to to learn more.

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