In today’s complex business environment, effectively managing risk through strategic insurance solutions is essential.
A strategy that’s gaining popularity among mid-sized and large businesses is the use of captive insurance. Captive insurance offers a flexible and cost-effective way for companies to take more control over their insurance programs. At Galloway, our insurance defense attorneys work closely with clients to navigate the regulatory, legal, and structural complexities of forming and managing captive insurance programs, providing strategic counsel on compliance and dispute resolution.
What is a Captive Insurance Group?
Captive insurance is essentially a privately owned insurance company established by a company, or a group of companies, often within the same industry or trade association, to insure collective risks. Instead of purchasing commercial insurance in the standard market, businesses pool their premiums into a group captive to cover shared liabilities.
Captives are often formed in favorable jurisdictions known as “domiciles,” such as Vermont, Delaware, or offshore locations like Bermuda and the Cayman Islands. These jurisdictions offer specific regulatory frameworks conducive to captive insurance operations.
Businesses in the Gulf South considering group captive formation should be aware of both federal guidelines and state-specific insurance regulatory requirements.
Types of Captive Insurance Structures
While there are several variations, the most common group of captive structures includes:
- Group Captive: Formed by multiple, non-affiliated business to insure the group’s risks.
- Association Captive: Sponsored by a trade or industry association, insuring the risks of its members.
- Risk Retention Groups: A specialized type of group captive created under the federal Liability Risk Retention Act, focusing mainly on liability insurance.
Each structure has its own regulatory requirements, tax implications, and operational considerations.
Key Benefits of a Group Captive
Group captives offer a range of strategic advantages that can foster stronger risk management practices across participating businesses.
- Cost Savings and Price Stability: By cutting out the profit margin of commercial insurers and reducing overhead, businesses can often lower their overall insurance costs. Instead of profits going to an outside insurer, surplus funds may be returned to group members. Captives can offer more consistent pricing, even during hard insurance markets when premiums in the commercial market spike
- Greater Control and Influence Over Claims Process: Captive groups can customize coverage and underwriting criteria to better suit their specific risk profiles. Depending on the structure of the captive, members often have more input in the handling of their claims.
- Promotion of Good Corporate Culture: With a shared interest in reducing claims, members often collaborate and share claim stories, resulting in stronger loss-prevention practices for all captive.
Legal Disputes in Captive Insurance
While captives offer flexibility, they also have legal complexity. Disputes may arise between captive members, third-party administrators, or excess carriers over claim obligations or reinsurance terms. Galloway’s insurance coverage attorneys in the Gulf South represent captives and insureds in resolving conflicts through negotiation and litigation.
Galloway Johnson Tompkins Burr & Smith and its team of insurance defense and coverage attorneys represent a variety of captive insurance groups as both primary counsel in litigated claims as well as outside consultations in negotiations between individual captive groups and carriers.
Disclaimer: This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between Galloway and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions.
