Last Updated on: June 2, 2025

Unlocking the Power of Group Captives: A Producer’s Guide to Risk Management, Profitability, and Premium Control

Group captives have become one of the hottest topics in commercial insurance over the last several years, especially as we navigate one of the hardest markets producers have seen in decades. With premiums climbing and standard markets tightening their underwriting appetite, many middle market companies are asking their brokers about alternative risk financing strategies. Enter group captives.

For producers, understanding how group captives work—and when they make sense—can be a game-changer. Not only do captives offer a way for your best clients to regain control of their premiums, but they also create stickier relationships and improve your book’s profitability. In this blog post, we break down everything you need to know, using insights from a recent conversation with Jason Duby, Captive Manager at Garnet Captive.

Understanding the Captive Landscape

What Is a Group Captive?

Captives are alternative risk transfer vehicles where insureds band together to create their own insurance company. The idea is simple: if you’re a good risk, why not benefit from your own performance instead of letting a traditional carrier keep the profits? While there are several types of captives, the two most common are:

Single-Parent Captives: One company forms and owns its own captive, often seen with large corporations.
Group Captives: Multiple companies band together to form a jointly owned insurance company. These can be either homogeneous (same industry) or heterogeneous (mixed industries).

You may also hear about protected cell captives, where each participant operates within its own legally separate cell under a shared structure. These are popular among agencies and MGAs with a book of high-performing business they want to underwrite differently.

Mechanics of a Group Captive

Group captives function by pooling premium dollars from all members and setting aside funds to pay for claims. Typically, this includes two layers:

A primary fund (sometimes called an A fund) to pay for frequency-level claims
A shared layer (or B fund) to cover larger or less predictable losses

With Garnet Captive, this process is streamlined. Each member contributes to both funds but shares large losses on a pro-rata basis. That means if there’s a $200,000 loss in the shared fund, you might only be responsible for 1–2% of that amount.

Unlike traditional insurance where unused premiums go to the carrier’s bottom line, captives return excess funds to members—with interest—through underwriting profit distributions. This is one of the most appealing aspects for financially strong businesses.

What Sets Garnet Captive Apart

Accelerated Distribution Schedule

Many group captives follow a delayed distribution model, where members don’t see any of their surplus for 4–7 years. Garnet Captive changes the game with an accelerated distribution model:

40% of underwriting profits are distributed one year after policy expiration
30% in the second year
30% in the third year

This structure allows members to enjoy the fruits of their strong performance much sooner, improving cash flow and ROI.

Flexible Retention and Customized Claims Handling

One of the big differentiators for Garnet is their adjustable retention levels, which can range from $50,000 to $250,000 depending on the size and profile of the business. This allows for tailored solutions based on risk appetite.

In addition to using a third-party administrator (TPA) for claims, Garnet provides in-house oversight to ensure claims are managed efficiently. They also customize the claims notification and involvement process for each member, enhancing transparency and control.

Pro-Rata Shared Loss Model

Most captives operate under a model where a member must exhaust their share of the loss layer before tapping into group funds. Garnet flips the script with a pro-rata shared loss model. Everyone contributes to the large loss fund and shares claims proportionally.

This structure protects each member from catastrophic losses and enhances long-term group stability. It’s especially appealing for safety-conscious organizations who want to benefit from their risk control practices without being penalized for someone else’s bad luck.

Financial Considerations Every Producer Must Understand

Collateral, Premium, and Distributions

Joining a group captive requires a financial commitment, but it’s structured to be manageable:

Collateral: Typically 25–30% of premium, collateralized via cash or a letter of credit
Premium: Similar to guaranteed cost programs, with optional payment plans
No Share Purchase Requirement: Unlike many captives requiring $35k+ buy-ins, Garnet removes that barrier to entry

Members must collateralize for each year they’re in the captive. Garnet uses a rolling two-year average over a three-year stacking period. After year three, your collateral requirements stabilize, improving long-term affordability.

Long-Term Commitment

Captives are not a fit for short-term thinkers. If your client shops their insurance every year or plans to sell their business in two years, a captive won’t be a good match. However, for businesses with:

Strong balance sheets
Clean loss histories
A desire to control their insurance destiny

Producer Cues: When (and When Not) to Recommend a Captive

What to Listen for in Client Conversations

As a producer, knowing the right qualifying cues can help you identify captive candidates. Look for:

Clients saying, *”We haven’t had a claim in years, but our premiums keep rising.”
Safety-focused organizations with formal risk management programs
Growing businesses with increasing headcount or fleet size
Strong financials and clean mod histories
Companies with a culture of accountability and continuous improvement

These are the ideal clients who will benefit from the group captive model and help strengthen the group as a whole.

Red Flags to Watch For

Not every client is a fit. Steer clear of prospects who:

Have a high experience mod (e.g., 1.75 or higher)
Are under financial distress or considering Chapter 11
Exhibit poor safety culture or have ongoing OSHA violations
Are shopping for the cheapest deal year after year
Say things like, *”Everyone else turned us down. Can you get us into a captive?”

These businesses are more likely to strain the group and create long-term issues.

Why Working with the Right Captive Partner Matters

Avoiding Common Pitfalls

One of the biggest mistakes producers make is trying to force a captive fit without understanding the nuances. Just because your client is frustrated with the standard market doesn’t mean a captive is the solution. In fact, putting the wrong client in a captive can do more harm than good.

That’s why working with a seasoned partner like Garnet Captive is essential. Their team conducts thorough underwriting and vetting to ensure only the right risks enter the program. And they offer direct producer support every step of the way.

Positioning Yourself as a Trusted Advisor

Understanding group captives allows you to elevate your role from insurance salesperson to strategic risk advisor. Instead of just delivering quotes, you’re guiding clients toward long-term risk financing solutions that:

Return unused premium
Improve risk control
Strengthen company culture

You’re also building a more profitable and defensible book of business. Clients in captives are more loyal, more engaged, and less likely to jump ship.

Embrace the Opportunity of Group Captives

Group captives are no longer a fringe solution for massive corporations. With innovative structures, accelerated profit distribution, and customizable options like those offered by Garnet Captive, they are now a viable path forward for many middle market businesses.

As a producer, understanding how to educate, evaluate, and position group captives in your pipeline will not only help you win better accounts but also keep them longer. In today’s market, that’s a powerful advantage.

If you want to learn more or explore if a captive is right for your client, start by having a conversation with a trusted partner like Jason Duby at Garnet Captive. The future of risk financing is already here—are you ready to offer it?

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