The following table describes the distinctions between the standard insurance market and captive insurance.
||Captive Insurance Companies
||Traditional Insurance Companies
||Costs and Expenses
||Generally lower operating costs and premiums actuarially based on individual loss history.
Operating costs typically stable year to year.
|Operating costs generally not disclosed and premiums based on industry data.
||Captive invests loss funds and any investment income is maintained for the benefit of captive owners.
||Insurance company retains all investment income.
||Captive owners fund their own predictable losses while reinsuring catastrophic exposures, and premiums can be stabilized through loss control.
||Premiums increase and decrease based on insurance cycles, not individual’s loss experience.
||Captive owners may decide which risks are acceptable and evaluate prospective members.*
||Insurance company selects only those classes of risk that conform to its "standards".
||Captive owners decide which services will be purchased, promoting cost effectiveness.
||The standard market avoids providing individual services on a fee basis.
||Greater control over claims adjudication, including:
- Direct access to the claims adjuster and ability to designate claims requiring special attention
- Input regarding choice of legal counsel
|Less control over claims adjudication. Claims are typically handled by the insurance company.
* Subject to final approval by the program insurer.