There are several areas of differentiation:
- What happens to your premium. With traditional insurance, premium is a sunk cost: it goes to your insurance company's margin, whether your year was good or bad. With a captive, premium funds an insurance company you own, where you keep the profit after claims and operational expenses.
- What gets covered. Commercial policies are written for a market average, with exclusions where the insurer wants to protect themselves; captive policies are written for your specific risks.
- Access to information. In the traditional model the insurer holds your information and runs the process, whether that's claims data and decisioning, or a detailed accounting of expenses. In a captive, you own the information.
It's important to note that insuring through a captive and buying a commercial policy are not mutually exclusive. Most captive owners still buy commercial coverage where the market prices it well, or where the appetite for retention reaches its limit. The captive is a strategic asset that can be deployed in response to market mispricing, emerging gaps in coverage, and to seize new opportunities to profit from a well-run risk program.
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