April 28, 2026
Construction companies face a unique risk profile. From jobsite safety incidents and vehicle accidents to warranty exposures, many general contractors find that traditional insurance programs are becoming increasingly expensive and restrictive.
One alternative that continues to gain traction in the construction industry is captive insurance. This article introduces what captives are, how they work, and why they may be a strategic option for general contractors.
A captive insurance company is an insurance company that is owned by the business it insures. Rather than paying all premiums to a third-party carrier, the operating company pays premiums to its own captive, which then insures certain risks.
Captives are legitimate insurance companies. They issue policies, collect premiums, pay claims, and are regulated by insurance authorities. They are not intended to replace all commercial insurance, but are commonly used by construction companies to insure:
• Deductible layers of workers’ compensation or general liability
• Predictable, high-frequency jobsite claims
• Auto liability losses
• Warranty or completed-operations exposures
For more information about the different types of captives please refer to Captives 101: A Guide to the Different Types of Captives
For general contractors, captives are typically used to complement—not fully replace—traditional insurance coverage.
Many contractors use captives to insure lower-level layers of general liability or auto liability risk, particularly where commercial carriers have increased deductibles or imposed restrictive terms.
Some contractors also use captives to insure specific warranty or completed-operations exposures, especially for specialized trades or project types where claims tend to be infrequent but expensive when they occur.
Example: Workers’ Compensation Deductible
A general contractor may carry a commercial workers’ compensation policy with a $250,000 deductible. Instead of paying deductible losses on claims directly out of operating cash flow, the contractor’s captive insures that deductible layer.
• The contractor pays actuarially determined premiums to the captive
• The captive reimburses the contractor for claims on payments made for the deductible
• Favorable loss experience results in retained underwriting profits over time
There are many benefits of captives for general contractors. Some of these benefits include:
Cost Stability and Long-Term Savings: Construction insurance pricing is often cyclical with unpredictable increases in premiums. Captives allow contractors to smooth insurance costs over time and retain underwriting profits when claims are lower than expected.
Stronger Alignment Between Safety and Financial Results: Because claims are ultimately paid by the captive, investments in safety programs, training, and loss prevention have a direct, positive financial impact.
Coverage Customization: Captives allow contractors to design coverage that better reflects their operations, project mix, and risk tolerance without paying for unapplicable coverage or unnecessary policies.
Potential Tax Advantages: When properly structured, premiums paid to the captive may be tax-deductible and underwriting profits may accumulate in a more tax-efficient environment.
Captive insurance is not a fit for every contractor. It is typically best suited for general contractors with consistent revenue, meaningful insurance spend, and a favorable and consistent loss history (low frequency and magnitude of losses). Captive insurance arrangements are closely scrutinized by tax authorities and must demonstrate real risk transfer, risk distribution, and economic substance. Consequently, it is best to partner with a captive manager that can help structure captives appropriately, so all appropriate regulation requirements are met. The set-up process may include, but is not limited to, the following:
• Feasibility study including actuarial and financial modeling
• Selection of an appropriate captive structure and related risks that are to be insured
• Domicile selection with suitable regulatory oversight
• Capitalization and licensing approval
Operating a captive requires ongoing discipline and professional oversight, including actuarial reviews, claims administration, financial reporting and audit requirements, regulatory filings, and tax compliance. Captives must be operated as real insurance companies with proper governance and documentation. A good captive manager helps ensure that requirements and regulations are transparent and met by all parties involved.
Captive insurance is not appropriate for every contractor. However, for well-managed general contractors facing rising premiums, increasing deductibles, and limited coverage options, captives can be a powerful tool to regain control over insurance costs and risk outcomes.
Captive insurance decisions should be made with input from experienced tax, audit, actuarial, and insurance professionals. Larson and Company has the expertise and a broad network of trusted partners to help guide construction companies through the evaluation, structuring, and ongoing considerations of captive insurance arrangements.
If you have questions about captive insurance or want to explore whether this approach could be a fit for your construction business, contact our captive insurance team to learn more and start the conversation.
What is a captive insurance company?
A captive insurance company is an entity owned by a business to insure its own risks, allowing the company to pay premiums internally rather than entirely to third-party insurers.
How do captives benefit general contractors?
Captives provide cost stability, potential long-term savings, customized coverage, and a direct financial benefit from improved safety and reduced claims.
Do captives replace traditional insurance?
No, captives typically complement traditional insurance by covering specific layers of risk, such as deductibles or predictable losses, rather than replacing all coverage.
What types of risks can contractors insure through a captive?
Common risks include workers’ compensation deductibles, general liability layers, auto liability, and certain warranty or completed-operations exposures.
Is captive insurance right for every construction company?
No, captives are generally best suited for contractors with stable revenue, significant insurance costs, and a strong claims history, along with the ability to meet regulatory and operational requirements.