Which statement accurately describes a captive insurance organization?

Which statement accurately describes a captive insurance organization?

• A. It is a government-run insurer
• B. It is a reinsurer that operates independently of insureds
• C. It refers to closely-held insurance companies owned and controlled by insureds
• D. It only covers workers' compensation risks

Answer: (C)

Captive insurance organizations are closely-held insurance companies owned and controlled by the insureds themselves, formed to insure the risks of the parent company and its affiliates. This ownership and control by the insureds is the defining feature: the captive exists to serve the risk management needs of its owners, not to operate as an external market entity. Because of this structure, captives can tailor underwriting, claims handling, and coverage to the specific risk profile of their owners, and they may offer potential cost savings and more predictable placement of risk. They are not government-run programs, and they are not independent reinsurers acting outside the interests of insureds. While many captives focus on a single line of business, others are multi-line, including workers’ compensation. In short, the essence of a captive is an insurer owned and controlled by the insureds themselves.

Captive insurance organizations are closely-held insurance companies owned and controlled by the insureds themselves, formed to insure the risks of the parent company and its affiliates. This ownership and control by the insureds is the defining feature: the captive exists to serve the risk management needs of its owners, not to operate as an external market entity. Because of this structure, captives can tailor underwriting, claims handling, and coverage to the specific risk profile of their owners, and they may offer potential cost savings and more predictable placement of risk. They are not government-run programs, and they are not independent reinsurers acting outside the interests of insureds. While many captives focus on a single line of business, others are multi-line, including workers’ compensation. In short, the essence of a captive is an insurer owned and controlled by the insureds themselves.