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Published August 08, 2023

Captives Part 5: Is A Captive Right for My Business?

Three hands pointing at charts on a table

In part five of our captives blog series, we use some real examples to show the value of joining a captive.

At Gregory & Appel, we helped our first client into a captive in 2004 and we’ve seen it all since then. Not to mention our professional advisors have over 50 years of combined experience specializing in alternative risk transfer.

We understand joining a captive requires time, strategy and money – especially in the beginning. And that’s not to say you won’t see those investments return in a few years. Our clients have seen improvements not only in premium savings but across the board. The structure of captives forces you to take a hard look at your internal policies and procedures and make necessary adjustments on a routine basis. So yes, this will take more time and energy, but your business will be better for it.

Of our expansive client base, only one has left their captive to return to the traditional market, only to request to rejoin a few years later. That’s pretty indicative of how these captives work. Once you’re in, you really want to stay. If you continue to pay attention to your claims and stay on top of risk management, you have a real opportunity to recover some of your premiums.

Not only do your premiums go down, but all those dollars that you don’t spend on claims come back to you.

Show Me the Numbers

Let’s take a look at this distributor company who came to us with only workers’ compensation. We introduced them to a captive group in 2006 and 15 years later their premiums had been cut in half over that period of time – even though their exposures had doubled, which in their case were payroll, sales and number of vehicles.

Almost immediately after they joined the captive, the Global Financial Crisis hit in 2007. Naturally, their premiums went up over the next few years but then began to stabilize until they doubled their coverage in 2011 by adding on general liability and auto policies. As you can see in the chart below, their premiums continue to decrease after this bump in coverage because they were really focused on loss control, maintaining safety procedures and risk management.

They ended up paying half as much for twice the amount of insurance (now including workers’ comp, general liability and auto).

The takeaway here is that being in a captive encourages you to manage your own claims in a way that will allow your premiums to decrease over time as well as get some of the money back that you didn’t spend on claims.


Here are seven points to help determine whether a captive may or may not be a good fit for your business.

If you can relate to one or more of the following, then you may want to reconsider captives or meet with an experienced advisor to see if it’s a viable option.

1. You’re not comfortable with team decision-making.

This can be a tough concept for some, especially if it’s not in your DNA. You don’t always get to call the shots when you’re in a group captive. Every member is given an equal opportunity to weigh in and vote on important matters. Fortunately, each captive member only wants the best for their group.

2. You do not spend enough on premiums.

There isn’t an exact formula to tell you whether or not you’ll be successful in a captive. However, we’ve found a good rule of thumb is that your company should be spending at least $100,000 annually on workers’ compensation, general liability and auto coverage for this type of insurance to be beneficial.

3. You have poor claims history.

Keep in mind that a poor claims history doesn’t permanently rule out captives as an option – it just means not at this time. Working with a risk management company will help get your company’s claims back on track and prepare you for the stringent requirements of group captives.

4. You can’t make the time.

There are several time commitments required, for example attending annual board meetings and other in-person gatherings that may or may not be offshore. You should also consider the amount of time it takes simply to research and understand the captive and all its available resources.

5. You do not have a strong financial base.

Captives are best suited for companies with strong financials and have the ability to withstand paying a portion of their claims.

6. You’re joining solely for tax purposes.

This is NOT an investment or a way of receiving tax benefits. Captives are strictly an insurance product. Whether or not they offer tax benefits for your organization should be determined by a CPA or qualified tax attorney.

7. You’re focused on short-term goals.

Captives are built for the long haul. Typically, distributions don’t begin until 3-5 years after the end of a policy year for commercial insurance captives (Employee Benefits captives might have a shorter schedule), so it’s best to have the long game in mind when getting started.

Now, remember, we’re not trying to steer you away, just making sure that you fully grasp the commitment required of a captive member. If you’re ready for guidance on the required preparation for joining a captive, read on.

Click here to continue reading in part six, “Preparing to Join a Captive.”

Or, to view any entry from this six-part series, check out the links below.

This content is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. Gregory & Appel is neither a law firm nor a tax advisor; information in all Gregory & Appel materials is meant to be informational and does not constitute legal or tax advice.