Joel Chansky, consulting actuary with Milliman, explores the question, do captives save money? According to Mr. Chansky, to answer this, we first need to split the captive world into two buckets. There are group captives and single-parent captives. With group captives, the entire point is to save money.
On the other hand, arguably, captives cost money and don’t save money. There are start-up costs to get the captive up and running. And then there are ongoing annual services and fees that are incurred by the captive. Why would a single-parent captive be an attractive alternative? One of the main things that captives allow is for federal tax savings. If the captive is large enough, the savings often offset and exceed the expenses of owning and operating the captive. Lastly, a captive can be used as a potential profit center.