In recent years, captive insurance for employee benefits has gained considerable traction among employers. Our 2025 Benefit Trends Survey shows that over 40% of employers are either using or thinking about captives as an alternative financing option for their benefits. We’ve seen this trend in the past couple of years.
Medical stop loss (MSL) insurance has seen unprecedented growth due to rising healthcare costs and a greater percentage of self-insured employers. Million-dollar-plus claims increased significantly by nearly 30% in 2024 after climbing at a steady pace the previous three years.
There are two primary types of captives: single-parent captives and group captives.
| Single Parent | Group |
|---|---|
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| Who should consider these solutions? | |
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Key points about the group captive funding structure:
Captives aren’t a universal fit. While they can be a smart self-insurance strategy for some, it's important to consider other alternatives such as stop loss collaborative solutions or carve-in stop loss.
| Group captives | Stop loss collaboratives | Carve-in stop loss | |
|---|---|---|---|
| Improved purchasing power for better rates and terms | ✓ Yes | ✓ Yes | × Limited leverage |
| Structure | × Most complex | ✓ Streamlined | ✓ Most streamlined |
| Built-in analytics and cost containment solutions | ✓ Yes | × No | × No |
| Initial cash outlays (Collaterals) | ✓ Yes | × No | × No |
| Dividends potential | ✓ Yes, but may trigger tax events | ✓ Small dividends through experience refund program | |
| Commitment | Long term | Can be a year-to-year decision | |
For well-managed employers with access to collaborative solutions like our Stop Loss Collaborative (SLC) and Rx Collaborative, the improved purchasing power under a group captive arrangement for shared services can be limited. In evaluating group captive quotes against SLC quotes, we often find that captive financials don’t always compare favorably. It’s important to carefully evaluate all alternatives to select the best risk management approach that best fits your needs.
Choosing between captive and stop loss isn't always an either/or decision; using both can offer an optimal risk management approach. Many groups retain a predictable layer of their cost via captive and reinsure at higher attachment point for catastrophic claims, usually at lower premiums, through an external stop loss policy. This combined structure provides funding stability like traditional stop loss, while allowing more effective self-insurance for expected costs. The figure below shows how captive and stop loss can work together to achieve the optimal risk management approach.
You need to find the right experts that align with your strategic goals and will benefit your workforce in the long run. Captives are complex and may not be suitable for every situation. Our risk management team has deep expertise about captive areas, like MSL, life and disability and global employee benefits.
In addition to cost shifting, the use of a captive doesn't alter the inherent features or pricing of stop loss risk. If high-cost claims aren't adequately managed, payment will ultimately be required — whether through a captive arrangement, traditional stop loss carriers, or by plan retention. Therefore, addressing cost drivers at their roots remains critical. Self-funded employers should use advanced analytics to project future expenses, identify individuals at elevated risk and implement data-driven strategies for effective cost control and comprehensive risk management.
Captive insurance is a self-insurance strategy where an organization creates its own insurance entity to cover specific risks. For employee benefits, it can be structured as single-parent captives (owned by one organization) or group captives (multiple organizations sharing risks). This approach allows employers to retain control over their benefits, potentially reduce costs, and improve risk management.
Larger employers (2,000+ employees) with other self-insured risks, sophisticated organizations interested in alternative funding, and those with complex structures (like private equity firms or conglomerates) are typically well-suited for single-parent captives. Group captives are more suitable for self-funded groups with 50-1,000 employees who have favorable historical experience, reasonable cost control, and are willing to take on limited additional risk.
Captive insurance and stop loss insurance serve different purposes but can be used together for optimal risk management. Captives allow organizations to self-insure a layer of risk while stop loss insurance covers catastrophic claims. While captives offer potential long-term cost savings and improved risk management, they are more complex and require significant initial investment and long-term commitment. Stop loss insurance, on the other hand, provides more straightforward, year-to-year risk coverage.
