What is the primary purpose of a captive insurance company?

The primary purpose of a captive insurance company is to underwrite the risks of its parent company. A captive insurance company is an insurance entity created and owned by a business to provide coverage to itself. This arrangement allows the parent company to manage its own risk and retain premium revenues that would otherwise go to third-party insurers. By doing this, the parent company can tailor its insurance policies to fit its unique risk profile, potentially leading to cost savings and greater control over its insurance needs.

Captive insurance provides the parent company with direct access to the insurance market, enabling it to meet specific operational requirements and financial goals, which might not be possible through conventional insurance routes. This approach also helps in stabilizing insurance costs over time, as the parent company can adjust coverages and premiums based on its actual risk exposure rather than broader market rates.