A captive insurance company is primarily established for which purpose?

A captive insurance company is primarily established to provide insurance exclusively to its owners. This type of insurance company is created by a parent company or group of companies to insure the risks of its own business or related businesses. The primary motivation for forming a captive is to manage risks more effectively and potentially reduce insurance costs by keeping the premiums within the organization rather than paying them to an outside insurer.

Captives can also provide coverage for risks that are difficult to insure in the traditional market and can often customize policies to fit the unique needs of the parent company. Unlike traditional insurance companies that serve the general public or operate as mutual companies, captives focus specifically on the needs of their owners, allowing for greater control over their insurance program. This strategic approach can lead to financial benefits and better risk management tailored to the specific requirements of the owners.