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Captives Have Moved Downstream: Why Middle-Market Producers Must Master the Conversation—Or Get Left Behind

Captive

For most of my 20-year career, captives felt like something reserved for the insurance elite—the jumbo accounts, the Fortune-level operations, the companies with multimillion-dollar manual premiums and entire departments dedicated to risk management. If you had asked me ten or fifteen years ago whether a $250,000 account was a legitimate captive candidate, I would’ve laughed. I thought captives were reserved for companies so complex and so large that the only rational way to insure them was to build an insurance company around their risk.

Then the world changed.

Today, captives have moved downstream. Opportunities that were once considered out of reach for middle-market producers—especially those writing $100K to $500K revenue accounts—are now not only viable but increasingly expected by the business owners we serve. And whether you think you “play big enough” or not, your prospects and clients are hearing the word captive more than you realize.

If you aren’t the one explaining it, someone else will. And when they do, that client you thought was “locked down” will thank you for your service…and move on without hesitation. And nothing feels worse than losing an account because you failed to provide a solution you could have delivered.

That’s why, for The Protege Season 3, I brought in one of the best in the business—Warren Cleveland, founder of Captive Coalition—to coach our cast on how captives work and how producers should think about them proactively, not reactively. And to be blunt, Warren’s explanation is the most transparent, clear, and producer-friendly breakdown of the captive model I’ve ever heard.

This blog distills that conversation and adds my own perspective as someone who has lived through the consequences of not bringing captive solutions to the table early enough.

Why Captives Matter Now More Than Ever

Producers often tell themselves, “Captives don’t apply to my book.” Or, “I only write accounts between $50K and $150K, so I’ll cross that bridge later.”

Let me be very direct with you: that mindset is exactly how you get your book of business “raped and pillaged” by someone who will bring up the captive option.

Here’s what today’s marketplace looks like:

  • Captive minimums have dropped to $250,000 in combined WC/GL/Auto premium.
  • Risk-aware business owners are Googling this stuff.
  • Trusted peers are talking about it at trade events.
  • Middle-market CFOs are more financially sophisticated than ever.
  • Standard carriers are cutting limits, raising rates, and offering less transparency every year.

If you don’t show clients the captive path, someone else will. And most of the time, it won’t be because they’re smarter—it’ll be because they’re bolder.

And that’s what separates a producer who holds accounts for a decade from one who loses business on renewal.

The Traditional Insurance Problem: Lack of Transparency and No Incentive to Reduce Cost

Warren opened the mentor call with a statement that made every producer stop and think:

“Traditional insurance is the greatest form of socialism on the planet—the winners pay for the losers.”
—Warren Cleveland

He’s not wrong.

Here’s why business owners feel so frustrated with the traditional insurance model:

  1. Premiums rise even when they have no claims.

The carrier needs revenue. It’s that simple.
When an insured pays premium, the carrier calls it revenue.
And ask yourself:

When has a carrier ever voluntarily reduced revenue?

  1. They have no insight into where their dollars go.

Insured writes a check and gets a policy.
Everything else happens in a black hole.

  1. Claims are often paid without strategic discussion.

The adjuster pays it because it’s easier.
Your client deals with the consequences for three to five years through higher premiums.
And they don’t find out until it’s too late.

This lack of transparency is precisely what pushes good accounts to seek alternatives. And if you aren’t prepared to discuss those alternatives, you’re going to get blindsided.

What a Captive Actually Is—And Why It’s Not as Complicated as Producers Think

Captive

Let’s strip away the mystery.

A captive is simply:

An insurance company formed by business owners for the purpose of insuring their own risk.

A captive allows business owners to:

  • Control their own loss costs
  • Participate in underwriting profit
  • Gain transparency over where every dollar of premium goes
  • Stabilize premiums over time
  • Keep the money instead of giving it to Travelers, Liberty Mutual, or any other carrier

Captive Coalition’s structure, which Warren walked through, allows producers to plug select accounts into a group captive that reinsures the fronting carrier. The fronting carrier still pays the claims, but the captive manages the expected loss dollars and returns underwriting profit back to the members.

Once producers understand how the money flows, the entire idea becomes much easier to communicate.

Understanding the Economics: The 65/35 Rule

One of Warren’s biggest “lightbulb moments” for the cast came when he explained the economics behind every insurance dollar:

“For every dollar in premium, 65 cents is expected loss and 35 cents is operating expenses.”
—Warren Cleveland

This is huge.

That means:

  • 65% of premium is the money the carrier expects to spend on losses
  • 35% of premium is the cost of doing business (reinsurance, overhead, underwriting, claims, etc.)

This also means:

The business owner is already paying for their own losses.
The only question is: who manages that money?

When you break this down for a business owner, captives suddenly make a lot more sense. Because now they’re not thinking about premium—they’re thinking about outcomes.

How to Estimate Captive Premium from Loss Runs (A Formula Producers Should Tattoo on Their Arm)

Producers constantly ask:

“How do I know which accounts are captive-ready?”

Warren gave a simple and powerful formula:

Add up all losses for the last 5 years
Multiply by 2
Divide by 5
Divide by 0.65

That gives you a rough estimate of what their captive premium would be.
—Warren Cleveland

And when I heard that, I realized I had essentially been doing the same thing—but less accurately.

The point is this:

You can predict a client’s future premium with stunning accuracy simply by analyzing historical losses and applying the 65/35 rule.

Captives Are Not a Renewal Strategy

Producers make a huge mistake by introducing captive discussions at renewal time.

Here’s why it doesn’t work:

  • Year one is more expensive than the traditional market
  • Clients are emotionally charged and focused only on price
  • The collateral investment feels like an additional “renewal cost”
  • They don’t have time to digest the education
  • You look desperate, not strategic

Warren hammered this home:

“Do not make a captive a renewal play. The timing will kill the deal.”
—Warren Cleveland

The right time to introduce a captive?

90 days after you win the account
or
90 days after a renewal

This is strategic positioning, not scrambling.

What Makes a Client a Good Captive Fit

Captive

Warren broke it down simply. A great captive candidate must have:

  1. A minimum of $250,000 in combined WC/GL/Auto premium

This is the new reality. Captives have moved downstream.
And the barrier is lower than most producers believe.

  1. The willingness to bet on themselves

If a business owner doesn’t believe they can influence losses through training, safety, and culture, they’re a terrible captive candidate.
Some leaders simply don’t see the value in risk management.

And that’s okay. They just don’t belong in a captive.

  1. A stable financial foundation

Captives require:

  • Capital
  • Collateral
  • Commitment

This isn’t for the owner who “just wants the cheapest quote.”

This is for owners who want to run a sophisticated, predictable business.

The Captive Profit Timeline: When the Money Comes Back

Producers often ask:

“When do clients see the return?”

Warren shared the standard payout pattern:

  • Year 1 — Premium similar to the market, plus formation costs
  • Year 2 — Slight decrease in premium
  • Year 3 — More stabilization
  • Year 4 — First partial-year underwriting profit distribution
  • Year 5–7 — Full-year distributions begin (multiple years at a time)
  • Year 7+ — Ongoing underwriting profit + investment income

This is long-term, not short-term.

A captive is not a band-aid.
It’s a wealth-building strategy for companies that plan to be around for decades.

The Producer’s Responsibility: Making Clients “Captive Ready”

This is my favorite part of the entire discussion, because it ties directly into what I teach every producer in Killing Commercial and every contestant on The Protege:

If you want to win and retain middle-market business, you must help clients mature their risk programs ahead of time.

That includes:

  • Getting 5–10 years of loss runs
  • Identifying loss trends
  • Developing a pre-injury management plan
  • Improving safety and training
  • Documenting risk control measures
  • Teaching clients how improved behavior impacts pricing

I told the cast:

“You should be getting every one of your larger accounts captive-ready, even if they never join a captive. Because the behaviors required to be captive-ready are the same behaviors that make an account sticky.”
—David Carothers

Why Producers Lose Captive Opportunities—And How to Fix It

There are only three reasons producers lose big accounts to captives:

  1. They’re afraid of what they don’t understand.

Captives feel complex—until someone like Warren explains them in plain English.

  1. They assume their clients “aren’t big enough.”

That was true ten years ago.
It’s not true today.

  1. They don’t bring it up early enough.

If you wait until the client brings it up, you’ve already lost.

And this is where the marketplace is shifting.

Captives are no longer exotic, fringe, or obscure.
They’re mainstream, accessible, and increasingly appealing to middle-market buyers.

And if you don’t get ahead of it, someone else will.

The Captive Exit: What Happens When a Client Leaves

Another key takeaway Warren shared is that producers must understand the exit process:

  • A simple ACORD cancellation form removes the client from the program
  • The collateral stays in place for up to seven years
  • The client continues receiving underwriting profit on closed years
  • The carrier still pays the claims
  • Nothing “blows up” if a client leaves

It is harder to exit than a traditional policy, and that’s intentional.
But it’s not the nightmare many producers assume.

Better producers explain this up front so it never becomes a surprise later.

Captive

Captives Have Moved Downstream: Why Middle-Market Producers Must Master the Conversation—Or Get Left Behind

February 2, 2026 No Comments

For most of my 20-year career, captives felt like something reserved for the insurance elite—the jumbo accounts, the Fortune-level operations, the companies with multimillion-dollar manual premiums and entire departments dedicated to risk management. If you had asked me ten or fifteen years ago whether a $250,000 account was a legitimate captive candidate, I would’ve laughed. I thought captives were reserved for companies so complex and so large that the only rational way to insure them was to build an insurance company around their risk.

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