“Captive” refers to a particular structure of risk-management insurance which can build equity while providing cost-effective risk coverage for your business, and premiums are paid to the captive insurance company rather than a commercial insurance carrier. Many business-owners also own the captive insurance companies which provide coverage for their primary businesses, making it a form of “self-insurance” for large businesses.
They are named as such because the insurer is “captive” to the business owner. Like their parent companies, they must also maintain compliance with all insurance regulatory provisions and requirements of the Internal Revenue Service. Business-owners who own their captive insurance companies also benefit from greater control over the claims process and the ability to fund losses rather than pay out-of-pocket. Captives are owned by all twenty Dow Jones Industrial companies, as well as an estimated 98% of S&P companies.