Whether spurred on by the Patient Protection and Affordable Care Act or not, companies are increasingly looking at captive insurance.

Captives are like an "in-house" benefits plan, offering business a way to obtain coverage — for health and other insurance needs — rather than relying on traditional insurance companies. But every risk financing alternative, with the possible exception of guaranteed cost insurance, has benefits and risks. The key to success, especially with captives, is to correctly compare the salient benefits with the riskiest drawbacks for each organization. 

The National Association of Insurance Commissioners defines a captive as an insurance company that is created and wholly owned by one or more non-insurance companies to insure the risks of its owner or owners—essentially a form of self-insurance whereby the insurer is owned wholly by the insured. Captives are typically established to meet the risk-management needs of the owners or members, and the entities forming captives range from major multinational corporations—the vast majority of Fortune 500 companies have captive subsidiaries—to nonprofit organizations. Once established, the captive operates like any commercial insurance company and is subject to state regulatory requirements including reporting, capital and reserve requirements.