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CAPTIVE INSURANCE: An Introduction

Hypo:ABC Co. is an American pharmaceutical company that sells products internationally. Recently, one of its controversial drugs has been proved ineffective, causing thousands of angry patients to file suits against the company. ABC Co. has an insurance policy with ForeverGreen Insurance Inc. Due to its massive litigations, ForeverGreen has increased ABC’s premium threefold from the previous policy. Feeling that it has been taken advantage of by ForeverGreen, ABC’s Directors decided to seek an alternative insurance method where it can control its own destiny.
In the U.S. and internationally, thousands of companies face similar situations to ABC Co.’s. To solve their problems, the insurance market has created Captive Insurance, an alternative to the traditional insurance method where companies can manage their own risks and self-insure themselves. In the following sections, this guide explores the definition of captive insurance; its advantages and disadvantages.
Definition A captive in…