Is a captive right for us? Captive ready or captive curious?

What does being captive ready actually look like?

One source frames the starting question as control, cost and capacity, the "three c's" of captives. The same source says a study that does not begin by addressing whether a captive can improve risk management control may not establish a solid business purpose for insuring risk in a captive.

Another source says the most important step can be goals and objectives setting, because some organisations want to cut long-term costs, others want to solve coverage issues, and some want to offer third-party solutions. If your goal is simply "try something new at renewal", you are likely still curious.

A captive-management author says company size, risk appetite and risk exposure all play a role in whether a captive is the right choice. The same author says a captive can become an unnecessarily expensive exercise if it is not carefully analysed.

Is your data good enough?

Data is a practical readiness test. Captive.com says people commissioning a feasibility analysis are traditionally asked for exposure values (current and projected), five years of prior loss history by line of business, financial statements, copies of current policies and payment schedules.

Consultants interviewed by Captive International say initial datapoints are current policy details, historical exposure data for each line, and claims history, and that five to 10 years of history helps the review and is generally required by commercial markets being shown the proposal.

Loss experience matters too. One of those consultants said a consistently low loss ratio, around 50 percent or below, may indicate inefficiencies in the commercial market that make a captive a more cost-efficient funding route, and also warned that a high ratio can come from one large claim over 10 years. Treat that as one consultant's rule of thumb, not a test you pass or fail.

Captive.com also notes the harder case: for risks where commercial insurance is not available or there is no credible loss history, projecting losses and setting premiums is a real challenge.

Can you afford to put capital at risk?

Forming a captive, or joining a sponsored captive facility, puts the insured's capital at risk, and Captive.com says shareholders need to understand why their capital should be used to create underwriting capacity. The study should address the possibility that risk capital may be eroded.

One author lists costs beyond premiums: the cost of capital, federal excise taxes, audit, actuarial, captive manager, licensing and attorneys' fees. The same piece says most risk managers will compare the investment return on the capital with the company's internal rate of return criteria, and with the cost of borrowing to capitalise the captive.

A regulator's business plan guide shows the level of detail expected. It asks for five-year pro forma financial projections, the amount and source of initial capitalisation, and expected and adverse scenarios. If you could not produce a first draft of those numbers, even roughly, that suggests more groundwork is needed.

Cash can also get tied up. KPMG says collateral demands from a fronting insurer are a matter of commercial negotiation, and that captives need to assess which structures can reduce the collateral that becomes trapped.

Will your board and stakeholders back it?

Stakeholder alignment is part of readiness. A Willis Towers Watson consultant writes that a wide array of internal and external interests may have to be aligned to get the necessary approvals to launch a captive.

After launch, governance becomes your job. A panel reported by Captive.com said effective captive governance requires engaged board members, clearly defined responsibilities and useful reporting. It also said board members need enough knowledge of the captive's operations and finances to make informed decisions.

The same panel said service providers should work from consistent data and assumptions, because advisers given different information may produce conflicting conclusions. Ask yourself whether anyone in your organisation has the time and appetite to own that.

How long does it take, and who should assess it?

Consultants interviewed by Captive International said a typical feasibility study takes four to eight weeks from the start, and that if the decision is to form, it can take another two months or more depending on internal approvals.

On who does the assessment, Captive.com says internal staff, brokers, captive managers or independent consultants may all do it, and that each brings different strengths and biases. It says captive managers tend to be biased toward a "go" recommendation, especially if they will manage the captive afterwards. It also suggests telling the assessor up front that it will not manage the captive if one is created. Note that several sources here are themselves advisers or service providers.

A good study should also compare the captive with other risk financing options, including a high deductible programme and self-insuring, and consider an exit strategy, because long-tailed liabilities can take years to extinguish.

So are you ready, or just curious?

Leaning toward ready: you can state your objective in a sentence, you hold several years of clean loss and exposure data, your finance team can look at capital at risk, and your board is willing to oversee a new insurance entity. Leaning toward curious: the interest comes mainly from a hard renewal or a conference, data is patchy, or nobody has yet been asked to commit time or capital.

Curious is a perfectly good place to start. One source describes a feasibility study as determining whether a contemplated risk financing program is feasible for a particular organisation, and another says its purpose is to help make go/no-go decisions. Tax, legal and location questions need specialist, domicile-specific advice for your situation.

Sources

• Captive.com, What Are the Key Elements of a Captive Feasibility Study? (no date shown; 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)
• Captive International, Understanding captive feasibility studies (11 December 2020; read 2 November 2026)
• New Jersey Department of Banking and Insurance, Captive Insurance Company Business Plan (no date shown; read 2 November 2026)
• KPMG LLP, Getting it right: Captive formation and management (June 2014; read 2 November 2026)
• Captive.com, Captive Insurance Governance Requires Active Board Engagement (21 August 2026; read 2 November 2026)