What role do captives play in risk management?

Captives play a significant role in risk management by providing self-insurance options for businesses. A captive is essentially an insurance company that is wholly owned by its insureds. This structure allows companies to retain their risk within the organization rather than transferring it to a third-party insurer. By doing this, businesses can tailor their coverage to fit their specific needs, manage their costs more effectively, and potentially improve their overall risk management strategy.

Captives enable organizations to have greater control over their insurance costs and claim processes, often leading to cost savings and a more comprehensive understanding of their risk profile. They become a strategic tool for managing risks, allowing companies to retain and finance their own risks in a way that traditional insurance may not adequately address.

The other options reflect aspects of risk management, but they do not capture the primary function of captives as effectively as providing self-insurance options does. Therefore, the choice of self-insurance accurately represents the core role captives play in enhancing a company's risk management strategy.