What is a captive insurance company?

A captive insurance company is defined as a closely held insurance company that is controlled by its owners, typically to insure risks associated with their own business operations. This arrangement allows businesses to create customized insurance solutions that are tailored to their specific risk profiles. The owners of the captive are often the same entities that benefit from the insurance policies issued by the captive, meaning that they have a direct stake in both risk management and claims handling processes.

Captives can be advantageous for companies seeking better control over costs and coverage, as well as providing the potential for savings on premiums and enhancing risk management. Additionally, captives may offer tax benefits, as premiums paid to a captive can often be deducted as business expenses.

In contrast, the other options do not accurately describe the unique structure and functionality of a captive insurance company. For instance, insurance covering multiple independent businesses does not reflect the exclusive nature of a captive's control. Likewise, suggesting that a captive is only for large corporations fails to recognize that various sizes of organizations can utilize captives depending on their risk management strategies. Finally, framing it as a government-owned insurance firm overlooks the private ownership aspect that characterizes captives.