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The Six Cs of Captive Value


As the use of big data and analytics in risk financing and insurance decision making increases, the benefits of retaining risk are easier to assess and quantify. Once the amount of risk to transfer via insurance has been determined, the next step is to evaluate how best to finance the risks your company chooses to retain. For some companies, a captive insurance vehicle provides the financial, strategic, and operational benefits they seek. For others, their current or other risk financing methodologies will be more appropriate.

Companies establish captive insurance vehicles for various reasons depending on their industries and geographies. A captive insurance vehicle can create value in the following areas:

  • Financial — Reduce cost of risk by capturing profitable premium that would otherwise be paid to commercial insurers. There can also be tax efficiencies from pre-funding losses in a formal vehicle.
  • Strategic — Improve group purchasing power, control customer, supplier, or employee insurance costs, and provide direct access to reinsurance market capacity.
  • Operational — Centralize control of insurance, capture underwriting and performance management data, and improve group control of claims.