If your clients are considering captive insurance, you know they need to be prepared for a rigorous underwriting process. The best way to set them up for success is by guiding them through an audit of their existing risk management program. This audit will give you, your client, and the captive risk committee a clear picture of how well their business controls risk.
This guide will provide you with a simple, step-by-step approach to help your clients prepare for captive underwriting.
Why the Audit Matters
Captive underwriters want to know if your client’s low claims come from intentional risk management or just good luck. Your client will need to demonstrate:
- Why they are a good fit for a captive.
- How they will continue to be profitable inside the captive.
- Their commitment to improving and maintaining strong risk management practices.
Step 1: Assess the Business's Risk Management Mindset
Captives are about taking control and responsibility to reduce their premiums. Your clients are shifting from the insurance buyer mindset to thinking like an insurance company owner.
The captive risk committee will immediately determine whether the business has the right mindset. You’ll want to help your client consider:
- How does leadership think about safety and risk management today?
- Has risk management been a consistent priority or an afterthought?
- Is the business ready to commit long-term to improving its risk management program?
Make sure leadership is bought in. Captive committees spot hesitation quickly.
Step 2: Conduct a Risk Management Audit
Help your client audit their risk management program. Captives' underwriters want to see that your client’s positive loss history results from a solid and deliberate safety and risk management program. Not just luck.
Guide your client through a systematic audit that includes:
- Identifying all potential risks, including those not previously documented.
- Evaluating the current risk management program to see if it's formalized and consistently applied.
- Documenting all safety policies, procedures, and training to show that a proactive safety culture exists.
- Reviewing past losses, looking for patterns, root causes, and evidence of lessons learned and changes implemented.
Don’t wait until underwriting requests six years' worth of loss runs, policies, and audits. Have these early to spot gaps. Read our article on the 5-5-5 Program to understand why this information is important.
Step 3: Define a Long-Term Strategy
Captive underwriters want to see a business that’s thinking 3, 5, or even 10 years ahead. Help your client craft a strategy that:
- Shows how they’ll improve risk management today and in the future.
- Sets clear goals for reducing claim frequency and severity.
- Demonstrates a commitment to continuous improvement.
Step 4: Build the Narrative
After the audit, you’ll need to help your client put together a clear, organized presentation of their risk management program. The underwriter wants to see your client’s future plans.
This is your client telling the underwriters, “We’re ready, and here’s the proof.”
This narrative should address:
- Risk and loss scenarios.
- How risks and losses have been managed.
- The current risk profile.
- Where and how the risk profile is improving.
Underwriters want honesty. Acknowledge past weaknesses and show that they’ve been addressed.
Step 5: Prepare for the Committee
Your client will be ready to answer these questions that the committee will ask:
- Is your client profitable to the insurance industry today?
They want to know if your client has historically paid more in premiums than they’ve taken in claims. If the client is already profitable in the traditional market, it signals they’ll likely thrive in the captive model. - Does your client have the right mindset for captive ownership?
Captives reward businesses that control risk. Underwriters want to see a client who thinks like an insurance company owner and is willing to invest in safety, training, and loss control. - Is their loss history the result of skill, not luck?
If your client’s good track record comes from intentional safety programs and processes, underwriters will see them as a safe bet. If it’s just been smooth sailing without formal risk management, it’s a red flag.
Step 6: Help Your Client Take Ownership of Risk
The final step is helping your client mentally and operationally transition from being a passive insurance buyer to an active risk owner.
Make sure your clients:
- Understand that success in a captive means investing time, energy, and sometimes capital into safety and risk management.
- Accept the responsibility that comes with ownership, including ongoing monitoring and improvement.
- Have a plan for maintaining engagement with their risk management program over the long haul.
Why This Matters for You as the Agent
By helping your client through this process, you’re helping them become a captive owner and improve their business. This benefits everyone:
- Your client will be prepared for underwriting and future success in the captive.
- You’re a strategic partner for your client’s business and goals. This helps maintain your book of business.
- Your client will remember who helped them become captive-ready when it comes time for renewals and referrals.
Make Sure Your Clients Are Financially Prepared
Help your best clients take the next step toward captive ownership, both mentally and financially.
Read our article on the upfront costs of joining a captive insurer so you can help them understand the financial commitment they’ll need to make.
Finally, use the Captive Insurance Assessment Tool to see if your client would be an ideal fit for captives.
