Captive insurance has emerged as a strategic risk management tool for organizations seeking greater control over their insurance programs and improved risk financing strategies. Within the captive insurance landscape, two prominent options are standalone captives and cell captives.
This brief insight is based on a recent WTW Captive Owners’ Forum webinar and summarizes the benefits and differences of pure captives versus cell captives. For further insight, including real-world case studies on how organizations are using different captive structures, watch the webinar on-demand.
Pure captives are wholly owned insurance subsidiaries you as an organization can establish to cover your own risks. They offer a range of benefits that empower organizations to take control of their insurance programs:
Greater control and customization: Pure captives can provide you with more control over your insurance program, allowing you to tailor coverage to your specific needs and risk appetite. This level of customization enables you to align your insurance solutions more precisely with your organization's risk management objectives.
Cost savings and risk optimization: By retaining risk within the captive, you can reduce your reliance on traditional insurance markets and potentially save on premiums.
Enhanced risk management: Pure captives can allow your organization to refine its focus on loss prevention and risk mitigation. By assuming a greater degree of risk, the business is effectively incentivized to implement robust risk management practices. This can lead to improved operational resilience and reduced losses.
Investment income potential: Captives have the potential to generate investment income from the premiums and reserves held within the captive. This additional revenue stream can contribute to the overall financial performance of your organization and enhance its risk financing capabilities.
Cell captives can provide you with more flexibility and lower operating costs when compared to pure captive. Key benefits include:
Easier entry: Cell captives can provide an easy and reversible introduction to the captive concept. This makes them an attractive option if you’re exploring captive insurance for the first time or seeking a lower-cost alternative to establishing a pure captive.
Lower operating costs and shared resources: By participating in a cell captive, your organization can benefit from shared administrative and operational expenses. This can lead to lower operating costs compared to establishing and maintaining a standalone captive.
Access to reinsurance markets and capacity: Cell captives can also provide access to reinsurance markets, allowing you to tap into additional capacity and potentially secure more favorable terms. Access to reinsurance can enhance your overall risk management capabilities and provide greater financial protection.
Whether you choose a pure captive or cell captive will depend on factors such as risk appetite, cost considerations, your desired level of control and access to reinsurance markets. Working with an experienced captive insurance advisor will help you make an informed assessment of your specific needs. However, the following questions can help shape your priorities:
For a smarter way to control your risk and costs using captives, get in touch with WTW’s global network of specialists.
