What are captives in the context of insurance?

In the context of insurance, captives refer specifically to insurers that are either created or controlled by their policyholders, usually to underwrite the risks of those policyholders. This structure allows the entities involved to have greater control over their insurance costs and coverage, as they directly manage the risk and capital associated with the insurance process.

Captive insurance companies are established to insure the risks of their owners and can offer various advantages, such as customized coverage, potential tax benefits, and the ability to manage claims more effectively. As a result, policyholders can tailor insurance solutions to fit their unique needs while potentially reducing costs compared to traditional market options.

The other options do not accurately describe captives in the insurance context. For example, government programs involve public sector insurance mechanisms rather than privately held risk management. Third-party insurers refer to standard insurance providers that underwrite risks from outside parties without direct ties to policyholders. Lastly, insurance brokers act as intermediaries between clients and insurance companies rather than being insurers themselves.