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:
|Less control over claims adjudication. Claims are typically handled by the insurance company.
* Subject to final approval by the program insurer.