What Employee Benefit Captives Can Learn from the P&C Captive Origin Story
Risk captives aren’t new. They’ve been around for over half a century, quietly reshaping how organizations manage risk. But while property & casualty (P&C) captives have gone from fringe strategy to mainstream standard, employee benefit captives are only now entering their moment of broader market momentum.
So what can the evolution of P&C captives teach us about where we are — and where we’re heading — with benefit captives?
Let’s rewind.
A Brief History of P&C Captives
The origins of captives trace back to the 1950s, when U.S. companies — particularly in oil and mining — began setting up their own insurance subsidiaries to manage volatile and expensive risks. The movement accelerated in the 1970s and 80s as traditional insurance markets hardened, pricing became less predictable, and more organizations sought alternatives to the status quo.
Captives offered an answer:
More control over risk financing
Access to reinsurance markets
Return of underwriting profits
Customization of coverage
Eventually, as regulation evolved and best practices were codified, captives stopped being a rebellious workaround — and started being smart risk management. Today, more than 90% of Fortune 500 companies use captives in some form, especially for workers' comp, general liability, auto, and professional lines.
Now Enter: Employee Benefit Captives
Employee benefit captives — especially for medical stop-loss — are following a similar path, but decades behind. According to AON's 2023 Global Risk Management Survey, P&C captive adoption (and adaptations) far outpace employee benefit captives today:
For years, benefits were treated differently:
HR leaders didn’t “own” risk the way CFOs did.
Health insurance markets were complex, opaque, and relationship-driven.
Compliance concerns (ERISA, DOL, state mandates) made benefit risk-sharing feel intimidating.
But things are changing — fast.
Today, small and midsize employers are increasingly adopting benefit captives to gain the same advantages long enjoyed in the P&C world:
Lower volatility in self-funded health plans
Access to group buying power and data
Long-term cost containment strategies
Shared risk and reward with like-minded employers
What was once the domain of a few large employers or health systems is now spreading across industries, especially in manufacturing, education, and professional services.
Parallel Play: Similarities Between the Two Worlds
P&C Captives Benefit Captives Mature and accepted across industries Emerging but growing rapidly Well-regulated with proven structures Regulatory clarity improving (ERISA, DOL guidance) CFO-led strategy with actuarial rigor Increasing CFO + HR collaboration Used for high-severity, low-frequency risks Ideal for catastrophic medical claims (stop-loss) Vehicle for accessing reinsurance markets Now being used to access medical reinsurance/captives
Why This Matters Now
The timing couldn’t be more critical. Employer health plans are facing record-high costs and unpredictable large claims, driven by high-cost drugs, specialty care, and opaque pricing dynamics.
Many employers are waking up to a realization:
“We self-fund the first dollar of claims… but give away the upside on large claims. Why not rethink how we protect the top-end of the risk curve, too?”
That’s where benefit captives come in. And the early adopters — much like in the P&C world — are being rewarded.
A Few Predictions
Based on history, here’s where things might be headed:
Consolidation: Expect more structured, multi-employer benefit captives backed by strong TPAs and reinsurers.
Innovation: New tech and data tools will enhance how groups underwrite, monitor, and collaborate.
Standardization: Just like P&C, we’ll likely see more model documents, guidance, and third-party reviews to reduce friction and fear for new entrants.
Mainstreaming: What’s niche today will be standard practice in the next 5–10 years — especially for midsized employers.
Final Thought
If P&C taught us anything, it’s this:
When the traditional insurance market fails to deliver flexibility, fairness, or value — the captive model rises.
Benefit captives aren’t a passing trend. They’re a natural evolution. And right now, the innovators who step in early stand to gain the most.
Want help exploring whether a captive strategy could work for your organization or client?
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