What is the main purpose of captive insurance?

The main purpose of captive insurance is to cover the risks of its parent company. Captive insurance is a form of self-insurance where a company creates its own insurance company to manage its risks, allowing it to tailor coverage to its specific needs. This arrangement enables the parent company to have more control over its insurance costs, risk management, and claims process.

By establishing a captive, the parent company can directly address its unique risk exposures and potentially reduce overall insurance costs. It can also retain more of its premium dollars rather than paying them to a traditional insurer. This strategic approach allows the parent organization to optimize its risk management strategy while fulfilling specific insurance requirements that may not be satisfactorily covered by external insurance markets.