A captive insurance company is a licensed and regulated insurance company owned by a business (or individual), which issues various insurance polices to its owner. In SIMPLE ENGLISH, when you’re a business owner and you need to cover risks to your business, you either buy a commercial policy from a commercial carrier, or you can pay premiums to your captive to protect your business against those risks.
Your Insurance Company
Your business is exposed to risk everyday. Some risks are common to all businesses, and therefore a commercial carrier will offer off-the-shelf policies. Risks specific to your business need customized policies, which commercial insurance carriers do not issue.
Your insurance company can issue customized insurance policies. Captives are well suited to cover gaps in coverage and/or risks a commercial carrier does not issue a policy to cover. When an employer cannot buy an insurance policy for their risk, they are self funding that risk on their balance sheet.