What does a captive feasibility study involve, and cost?

What is a captive feasibility study?

It is a study to decide whether a planned risk financing programme is feasible for one organisation or a group of them.

Captive laws in many domiciles require a prospective owner to submit one with the licence application, and the source advises completing one even where it is not required, to document how the captive will be used.

Where the study exists only to satisfy a regulator, it focuses on the assumptions behind the financial projection and in effect becomes a business plan with actuarial support for the loss assumptions. One US state regulator's business plan outline asks for a feasibility study with an opinion comparing the applicant's results with similar businesses over five years, and loss projections under an expected and an adverse scenario.

What does the study actually cover?

Sources describe it somewhat differently, but the themes overlap. Captive.com frames the content around three questions: control, cost and capacity. Control asks whether a captive improves risk management and compares it with the viable alternatives. Cost covers changes in risk financing expense and long-term after-tax cash flows under different loss scenarios. Capacity covers retention ability and the capital required.

A captive management firm lists these key tasks: a review of current exposures, limits, losses, deductibles and premiums; an actuarial analysis; a review of structure options; a review of domiciles and managers; costs including capital; projected financial statements; a tax analysis; alternatives to a captive; and exit options.

A Willis Towers Watson consultant says a comprehensive study should set goals and objectives, collect and analyse data, recommend a structure and domicile, state financial assumptions with pro forma results over at least five years including adverse scenarios, and provide an implementation plan with costs and timelines.

KPMG describes a two-phase approach. Phase I involves interviews with stakeholders and agreeing design principles and a short list of options. Phase II covers areas such as cost benefit analysis, capital and solvency requirements, fronting, regulation, tax and accounting.

What information will I need to provide?

Captive.com says insureds are traditionally asked for current and projected exposure values (such as payroll, revenue, vehicles, property values and locations), five years of prior loss history by line of business, annual reports or financial statements, copies of current policies, and premium and claims payment schedules.

A consulting firm interviewed in Captive International lists current policy details, historical exposure data by line and claims history, and says five to 10 years of history helps the initial review. It also says that anything that could affect the projections should be considered, including organisational structures, tax environments, growth potential and acquisitions.

The reason for the data is practical. It is used to project expected loss costs and to identify potential coverage gaps.

Who can perform the study, and what are their biases?

Internal staff, insurance brokers, captive managers or independent risk consultants may perform a study, and each brings different strengths, weaknesses and biases.

Captive.com says internal teams usually cost less but few have the time or market knowledge to do it unaided, and a risk manager may lean towards a go decision. It says brokers sometimes charge little or nothing but cannot be expected to be fully unbiased if they will run the captive or lose commission income. It says captive managers tend to favour a go recommendation, especially if they will manage the captive, and may favour domiciles where they have offices.

It adds that experienced independent consultants usually charge substantial fees, less costly firms may not be as knowledgeable or may use generic reports, and consultants may also lean towards go if more work follows. It suggests telling the adviser at the outset that it will not manage the captive, and checking the experience and references of the people who will actually do the work.

Two providers in the sources describe themselves as independent. An accounting firm says it provides no management or brokerage services, and a consulting firm says independence allows an unbiased review. Those are the providers' own statements about their own services, so treat them as marketing claims to test.

What should it cost?

No source I read gives a price list or a standard fee. The only figure stated is from a Willis Towers Watson consultant in Captive International: "fees between $25,000 and $75,000 are relatively common" for a comprehensive study including actuarial, consulting, tax and legal opinions. It is one author's statement from 2020, from a firm that sells these services, and it should be treated as an anecdotal indication rather than a quote.

The same author says costs vary significantly with the size of the premiums involved, data availability and quality, lines of coverage analysed, complexity of the structure, and the need for supporting reinsurance. Captive.com adds that who does the work matters: internal work is almost always cheaper, brokers sometimes charge little or nothing, and experienced independent consultants usually charge substantial fees. A captive management firm notes that scope can range from straightforward to highly complex.

KPMG says it can structure flexible remuneration, some of which can be contingent on cost savings realised from the review. Fee arrangements that depend on the outcome can create their own incentive question, which is worth raising with any adviser.

Separately, the study is not the only cost. A captive management firm lists the premiums, cost of capital, federal excise taxes, audit, actuarial, captive manager, licensing and attorneys' fees as costs to identify.

How long does it take?

One consulting firm says a typical study takes four to eight weeks from the start, and that if the decision is to form, another two months or more may follow before formation, depending on approvals. That is one firm's experience, and timing depends on data quality and internal sign-off.

The same firm says refeasibility studies for existing captives are valuable, and recommends one every three to five years.

What should I do before commissioning one?

Write down the goals first, since one source calls goals and objectives setting potentially the most important step. Gather the loss and exposure data listed above, ask who will operate the captive, and ask for the scope and fee in writing. Peer review is also recommended for the finished study.

The sources note that tax, regulatory and legal questions need qualified advisers. Domicile-specific and tax questions should be taken to your own qualified advisers; nothing here is tax or regulatory advice.

Sources

• Captive.com, What Are the Key Elements of a Captive Feasibility Study? (no date shown; read 2 November 2026)
• Captive International, Understanding captive feasibility studies (11 December 2020; read 2 November 2026)
• Captive International, Exploring the value of captive feasibility studies (4 November 2024; read 2 November 2026)
• Captive International, An informed decision - considering a captive (no date shown; read 2 November 2026)
• New Jersey Department of Banking and Insurance, Captive Insurance Company Business Plan (no date shown; read 2 November 2026)
• KPMG, Getting it right: Captive formation and management (no date shown; read 2 November 2026)