What is the primary purpose of a captive insurance company?

The primary purpose of a captive insurance company is to insure the parent firm's loss exposures. A captive insurance company is essentially a wholly owned subsidiary created by a parent company to provide insurance coverage for itself. This model allows the parent firm to manage risks more effectively and tailor insurance solutions specifically to its unique needs, often leading to cost savings and enhanced risk management.

Captives enable companies to gain greater control over their insurance program, establishing their own policies, terms, and conditions. By doing this, parents can mitigate risks directly related to their operations and business strategies. This focused approach allows liabilities to be covered in a way that may not be feasible through traditional insurance markets, making it a more strategic and cost-effective solution for many organizations.