The Concept of Captive Insurance Company
A captive insurance company is the epitome of a self-insurance program. A
captive insurer may be defined as a wholly owned insurance subsidiary with a
primary function of insuring all or part of the loss exposures of the parent
organization. The term "captive" as defined by the Webster dictionary means
"owned or controlled by another concern and operated for its needs rather than for
an open market." The definition proposed by Bawcutt (1982, p.1) is "An
insurance company that only insures all or part of the risks of its parent."
A captive insurance company is an insurance company that is owned by one
or more non-insurance parent organization. Many insurance subsidiaries owned
by large corporations are not classified as captives. Even though they provide
some insurance coverage for their parent companies, their primary function is to
market insurance products to the general public. Many definitions exist and are
changing with the evolution of the objective of captive insurance companies.
Most observers classify captives into four categories:
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Pure Captive: A wholly owned subsidiary of a non-insurance organization
established to fund all or a portion of the parent's risks.
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