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Group captive insurance for contractors is the Wild West.

I don't say that lightly. I've spent years educating contractors on group captives, and the single biggest mistake I see repeatedly is this:

A contractor evaluates one captive structure, doesn't love what they see, and writes off group captives entirely.

That's a miscalculation. A big one.

If you've evaluated one captive, you've seen one captive.

That's like having Travelers quote your program and decide there's no reason to ever let Zurich or Liberty Mutual take a look. You'd never do that in the traditional market. You know that carriers differ on price, coverage, terms, appetite, and claims philosophy. You evaluate multiple options based on your needs, the type of contracting you do, and your risk tolerance.

Group captives should be evaluated the exact same way.

Why this matters right now

The construction insurance market is punishing contractors who don't explore alternatives.

• Commercial auto rates have increased for 36 consecutive quarters. That's nine straight years of rate hikes.
• Umbrella liability rates are up 7% to 40%, and carriers are slashing capacity from $10 million down to $5 million per carrier.
• Nuclear verdicts hit $31.3 billion in 2024. 116% increase over the prior year, with the average verdict exceeding $51 million.
• Meanwhile, captive insurers outperform the commercial market by 17 points on combined ratio: 83% vs. 100% for traditional carriers.

Contractors with strong safety records are subsidizing poor performers in the traditional market. Group captives are a proven way to stop doing that. But only if you find the right captive for your operation.

The nuance most people skip

Yes, group captives have features that don't exist in traditional insurance. You'll need to post collateral. You'll share risk with other members. You'll attend an annual board meeting and participate in governance. These things require commitment, and that's actually the point. It's why captives outperform.

But here's what trips up most contractors: they evaluate one captive, encounter one of these features, and assume all captives work the same way.

They don't.

Captive structures vary enormously. Size, composition, risk-sharing mechanics, investment approach, and even the liability limits they can offer. The differences are material. They affect your cost, your risk exposure, your umbrella pricing, and ultimately whether this thing works for you or doesn't.

The 10 things to evaluate when comparing group captives

I've put together the framework I use when helping contractors evaluate captive options. These are the items that actually move the needle.

1. Year the captive was formed

Maturity matters. A captive formed in 2004 has twenty-plus years of actuarial data, claims history, and dividend track record. A captive formed two years ago doesn't. That doesn't mean newer captives are bad, but it does mean you're making a different bet. Know which one you're making.

2. Number of current members

This tells you about risk diversification. A captive with 8 members has a very different risk profile than one with 80. Smaller groups give you more influence and tighter peer relationships. Larger groups give you more predictable results through the law of large numbers. Neither is inherently better, but you need to know what you're walking into.

3. Target membership size and cap

How big does this captive want to get? Some captives have a target membership cap. Some don't. The growth strategy affects your risk pool, your governance influence, and how much the captive's character might change after you join. A captive that's "always recruiting" tells you something different than one that's selective and approaching capacity.

4. Homogeneous vs. heterogeneous membership

This is a big one for contractors.

A homogeneous captive is all construction members. This means everyone shares similar risk profiles, speaks the same language, and understands the exposures unique to this industry. Your peers understand additional insured requirements, job-site injury dynamics, and why subcontractor oversight matters as much as your own safety program. That shared context drives better accountability across the group, and better accountability is what keeps claims low.

A heterogeneous captive is mixed industries. This gives you broader risk diversification. But you lose industry-specific accountability, and your claims experience gets blended with risks that have nothing to do with construction.

I generally prefer homogeneous contractors. But there are exceptions depending on the program.

5. Historical loss ratio

This is the captive's track record. What has the combined loss ratio been over the past 5, 10, or 15 years?

For context: the commercial casualty market averages a combined ratio of roughly 100%. Well-run group captives consistently operate in the low-to-mid 80s. If a captive you're evaluating is running north of 90%, ask why. If it's consistently in the 70s, that's a strong signal.

This number tells you how likely you are to see dividends, and how well the captive manages risk.

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6. Average size of existing members

You want to understand where you'd fit relative to the rest of the group. Are the other members doing $300K in combined premiums? $750K? $2 million?

This sets up the most important question, which is #10 below. But it also tells you about the captive's risk appetite, the types of contractors they attract, and whether the group is built for companies like yours.

7. Historical loss shifting and sharing percentage

This is often a glossed-over detail, and where contractors get surprised.

In a group captive, a portion of your premium goes into a shared pool (the "B Fund" or severity layer) that pays for other members' large claims. The question is: how much?

A well-run captive with strong membership will have a low loss-sharing percentage. If the number is high, it's a red flag. It means either the captive has members with poor loss experience, or the structure is designed to shift more risk onto the group. Either way, your money is covering other people's problems at a higher rate.

Ask for the historical data. Not projections, actuals. Over 5+ years. If they won't share it, that tells you something, too.

8. Historical investment income percentage

Your premium doesn't just sit in a bank account. While claims develop, the idle premium gets invested, and the income generated should benefit you as a member.

Different captives have different investment philosophies, different portfolio allocations, and different track records. Ask what kind of returns the captive has generated on invested premiums over the past 5-10 years. This is part of your total cost of risk, and it varies more than most contractors realize.

9. General liability and auto liability limits

This one flies under the radar, but it might be the most important financial consideration for contractors evaluating captives.

Here's why: your umbrella policy attaches to your primary GL and auto limits. In the traditional market, you're typically buying $1M/$2M GL and $1M auto. Your umbrella sits on top of that.

Some captives can offer $2M/$4M GL or even $5M or $10M primary limits. When your primary limits are higher, your umbrella attaches higher, which means the umbrella is cheaper. Significantly cheaper.

Umbrella cost is one of the biggest reasons I see contractors walk away from group captives. They look at the captive premium, then look at what they'd still need to pay for an umbrella, and the total doesn't pencil. But that's often because they're comparing against a captive with standard $1M/$2M limits. A different captive structure with higher primary limits can completely change that math.

In a market where excess liability rates are up significantly, and carriers have cut capacity from $10M to $5M per layer, this isn't a minor detail. It's a dealbreaker if you don't ask the question.

10. Where would you fall in the membership?

Based on your premium size for GL, auto, and workers' comp, where would that put you relative to the existing membership?

Would you be one of the smallest members? One of the largest? Right in the middle?

Each position has implications.

If you're one of the smallest members, be cautious. With a smaller loss fund, a single adverse claim can consume a larger share of your individual funding and push you outside the captive's expected loss corridor faster than it would for a larger member. The same claim that's a "bad year" for a large member can be a "funding event" for you, triggering additional premiums, increased collateral, or a higher future loss-fund requirement depending on how the captive is structured.

If you're the largest member, you face a different problem. Because your A fund and B fund contributions are proportional to your size, your larger losses are being retained in your own loss fund. Meaning you're absorbing more of your own claims before the shared pool kicks in. Meanwhile, you're contributing a disproportionately large share to that same shared pool, which is paying for smaller members' losses that exceeded their individual funding. In effect, you're subsidizing the group without getting the same diversification benefit back.

The sweet spot is usually somewhere in the middle. You get real diversification benefit from the group, meaningful governance influence, and a loss fund that can absorb a bad year without triggering a capital event.

The bottom line

Group captives are one of the most powerful risk management tools available to contractors. The data proves it. Billions in dividends returned to members across the captive industry, the vast majority of accident years paying dividends, and combined ratios that consistently beat the commercial market by double digits.

But the tool only works if it fits your operation.

Don't evaluate one captive and walk away thinking you've seen the market. You haven't. Just like you wouldn't let one carrier quote define your insurance strategy, don't let one captive structure define your view of what's possible.

Do the work. Compare the structures. Ask the hard questions. Especially about loss sharing, liability limits, and where you'd sit in the membership.

I started this by calling group captives the Wild West. But here's the thing about the Wild West: the people who did well weren't the ones who stayed home because they heard one bad story. They were the ones who showed up prepared, asked the right questions, and knew what they were looking for before they got there.

That's what this framework is for. Not to sell you on captives, but to make sure that if you walk away, you walk away informed. And if you walk in, you walk in with your eyes open.

Either way, you'll know you did the work. And in this market, that's worth more than luck.