An agency captive insurance company is a reinsurance entity owned by a broker or agency. This captive receives a portion of the premiums and pays its part of the claims.
These captives involve shared responsibility between the agent and the carrier. Typically, a captive manager handles daily operations, and the fronting provider does the underwriting and loss protection. This arrangement minimizes the financial risk and administrative tasks of the agency.
This agreement benefits insurance agents in several ways.
- It allows ownership of and control over reinsurance and shared income.
- It produces an underwriting profit, creating new revenue lines.
- It provides the flexibility of a captive.
- If well-structured, it also offers an advantage against competitors.
- The customer gets a conventional policy backed by the carrier with a traditional sales and service process.
The provider also benefits from this type of partnership.
- This arrangement increases retention.
- It improves revenue and profit margins, too.
A captive owner must have sufficient capital to begin a captive. It takes time for profits to start paying out. Also, the fronting carrier requires collateral for the unfunded liability.
A broker who forms a captive should work with an agency captive insurance company to improve business and limit risk reduction for their clients.