Which option represents a captive insurance arrangement?

Which option represents a captive insurance arrangement?

• A. Safety groups
• B. Group and risk pools
• C. Captive insurance companies
• D. Self-insurance

Answer: (C)

Captive insurance is when a company creates its own insurer to cover its own risks, typically as a legally separate entity owned by the parent. This arrangement lets the company tailor coverage, manage claims more directly, and often access reinsurance and potential financial or tax benefits, all while staying under the regulation applicable to insurers. This is what distinguishes a captive from other risk-sharing ideas. Safety groups are multiemployer pools for workers’ compensation, not owned insurers of a single company. Group and risk pools involve multiple organizations sharing risk communally, not a single parent owning an insurer. Self-insurance keeps the risk and funding inside the company without forming a separate insurance entity. The defining feature of a captive is the owned insurer insuring the parent’s risks.

Captive insurance is when a company creates its own insurer to cover its own risks, typically as a legally separate entity owned by the parent. This arrangement lets the company tailor coverage, manage claims more directly, and often access reinsurance and potential financial or tax benefits, all while staying under the regulation applicable to insurers. This is what distinguishes a captive from other risk-sharing ideas. Safety groups are multiemployer pools for workers’ compensation, not owned insurers of a single company. Group and risk pools involve multiple organizations sharing risk communally, not a single parent owning an insurer. Self-insurance keeps the risk and funding inside the company without forming a separate insurance entity. The defining feature of a captive is the owned insurer insuring the parent’s risks.