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Group captives: What’s all the hype?

April 10, 2023
A growing number of tank truck fleets are turning to group captives to combat rate instability in traditional insurance markets. Our industry expert breaks down the potential benefits and drawbacks, and common concerns—and how to identify the right fit.

The instability of rates in traditional insurance markets continues to be a prevalent issue. To combat this trend, many companies in the tank truck industry are turning to group captives. But what does that really mean?

A group captive is an insurance program formed and controlled by multiple member companies to insure certain risks. While members own and control the captive, a captive management company handles the day-to-day operations, which allows the member companies to focus on running their individual businesses. Each captive is established with its own set of bylaws to address various member concerns, such as the process and standards for allowing new companies to buy in and become members.

This article dives deeper into the topic, highlighting potential benefits and drawbacks, common concerns, and what to look for in a captive. But keep in mind that, while the information here is broadly applicable across the industry, captive groups come in all shapes and sizes, and the specifics of each varies greatly.

Why all the hype?

As many companies see large swings in their insurance pricing, the primary concern is that one bad year could result in their insurance premiums doubling. To address this concern many companies are looking for alternative ways to gain control of their coverage and pricing. Companies have the desire to put more “skin in the game” and be rewarded when they perform well.

I often hear from companies that the biggest frustration with traditional insurance is that you pay a high insurance premium, have a great loss year, only to receive an increase at renewal due to “market factors.” Due to this frustrating cycle, many of the best companies have been leaving the traditional market and joining group captives where they have more control. 

Weigh the benefits

Group captives offer numerous benefits for their members. One of the most talked about is the possibility of dividends. When your company performs well, you are rewarded, not your insurance company.

The premium a company pays to the captive is based on that individual company’s performance. High-performing companies that reap the benefits of a group captive are those companies that control their yearly claim costs. The goal of a group captive is to not make a large profit since it is owned by the members it insures.

Many companies who become frustrated with poor claims handling enjoy the fact that they can be involved in how claims are managed.

Magness Oil in Gassville, Arkansas, has been a part of a group captive since 2018 “Joining a group captive was one of the best business decisions I have ever made,” said Jeffrey Magness, vice president of Magness Oil. “We now pay for the insurance we need, and nothing more.”

From my experience, many companies in captives see stability in their insurance premiums. Even when the inevitable misfortune hits, premiums typically remain stable and far less volatile than they would be in the traditional market.

Another benefit is many captives are moving to a $2 million primary auto liability limit. This is beneficial to the tank truck industry because they are often required to buy large amounts of liability coverage. When buying auto liability, the first $2 million is the most expensive.

Common fears

A common fear of joining a captive goes something like this: “What happens if another member has a catastrophic loss? Will it bring the whole group down?” Although this is a valid fear, most group captives are only taking on the first $300,000 to $500,000 of any claim. Coverage above this is paid by reinsurance that the captive facilitates. The total liability coverage a group captive offers will either be $1 million or $2 million. For any coverage desired above this, each individual member purchases their own excess liability policies.

Many distrust the fact that many group captives—but not all of them—are domiciled and must hold meetings outside of the U.S. Group captives are often formed outside of the country for the stability of laws and regulations.

What if you join and immediately have a few terrible years? For most captives, there is a set, predetermined amount of money you will owe. That amount is typically assessed over a period of several years. It’s worth noting that one year of assessment can be offset by a year of dividends, and vice versa.

Consider the downsides

One downside of a group captive is not all lines of insurance are included. Most group captives write worker’s compensation, auto liability, auto physical damage, and general liability. This leaves companies having to purchase other needed insurance such as property on a standalone basis. Many tank truck companies, especially in the petroleum industry, have a large property exposure that can be difficult to insure on a standalone basis.  

Joining a group captive often is an upfront capital investment. Sometimes, the total cost, including collateral, for the first few years will be greater than what you would pay in the traditional market. It is good to review your company’s long-term goals prior to joining a captive. For example, if you are considering selling in the next three to five years, a captive probably isn’t the best fit.

What to look for when choosing a captive

When choosing a captive, you should look at many factors including the expense ratio. This is the percentage of premiums paid into the captive that go toward accounting firms, claims management, reinsurance, and other costs associated with running an insurance company. Typically, the more members a captive has, the lower the expense cost is for each individual member.

For tank truck companies, pollution coverage is vital. Not all group captives offer pollution coverage. As a result, tank truck companies must buy a standalone transportation pollution policy. There are very few markets for mono-line transportation pollution. If you have a few bad pollution claims and get stuck in a tough situation, you may have trouble finding an insurance company willing to come to the table with a reasonable premium. Companies in the tank truck industry should join a group captive that will include pollution coverage in their auto policy.

Group captives are formed by a captive manager. The captive manager is responsible for organizing the services such as claims management, holding regular meetings, and keeping the organization accountable. When choosing a group captive to possibly join, it is important to evaluate the reputation and stability of the captive manager. You want to look for a manager who has a credible tenure managing group captives.

A complaint among companies after joining a group captive is that they see less and less of their broker and do not receive any ongoing risk management services. Typically, group captives do not pay any commissions. As a result, your broker will charge you a separate fee for facilitating the group captive. I recommend companies stipulate a set risk management plan that they expect to see from their broker every year in any agreement. When evaluating a captive, it’s equally important to choose the broker you work with because that’s hard to change afterward.

How to know if a group captive is a good fit

At Roark and Sutton, when working with our clients in evaluating a group captive, we take our responsibility as an advisor seriously. One way we do this is by having our clients complete our captive readiness assessment. This assessment is only one part of our educational approach. This ensures our clients have the knowledge and understanding to decide if a group captive is the right decision for their company.

An initial assessment for tank truck operators is available online at

Raymond White is a commercial insurance specialist at Roark and Sutton.