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.
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:
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:
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.
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:
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.
Collateral, Premium, and Distributions
Joining a group captive requires a financial commitment, but it’s structured to be manageable:
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:
What to Listen for in Client Conversations
As a producer, knowing the right qualifying cues can help you identify captive candidates. Look for:
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:
These businesses are more likely to strain the group and create long-term issues.
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:
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.
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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