Ep. 479 Group Captives May Be Contractors Solution to Rising Insurance Premiums
Rancho Mesa's Alyssa Burley sits down with Sam Clayton, Vice President of the Construction Group to discuss how group captives may be contractors’ solutions to rising insurance premiums.
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Host: Alyssa Burley
Guest: Sam Clayton
Editor: Megan Lockhart
Music: "Home" by JHS Pedals, “News Room News” by Spence
© Copyright 2025. Rancho Mesa Insurance Services, Inc. All rights reserved.
Transcript
Alyssa Burley: You’re listening to Rancho Mesa’s StudioOne™ podcast, where each week we break down complex insurance and safety topics to help your business thrive.
I’m your host, Alyssa Burley, and today I’m joined by Sam Clayton, Vice President of the Construction Group with Rancho Mesa. And, we’re going to talk about how group captives may be contractors’ solutions to rising insurance premiums.
Sam, welcome to the show.
Sam Clayton: Good morning Alyssa, glad to be back in StudioOne™.
AB: Well, thanks for coming. So, insurance is a hot topic right now with the recent wild fires in Los Angeles and the destructive hurricanes that came in 2024. And, insurance is not something that only homeowners are dealing with. Business owners are also looking at how they can protect their organizations without breaking their budgets.
So, what are you seeing with regards to the commercial insurance marketplace for your contractor clients?
SC: Great question Alyssa. Over the last few years, our clients have started to see rate increases on multiple lines of coverage within their insurance program. And, it’s really because the insurance companies are having a lot of difficulty in the property market, especially here in California with, like you mentioned, the wildfire risk, which has been pretty well publicized.
We’ve seen both homeowners and commercial landlords forced away from the standard property market and into surplus lines, or, worst case scenario, the California Fair Plan. We’ve also seen commercial auto policies come under pressure due to increases in litigation, costs to repair vehicles and social inflation. And, believe it or not, the one line of coverage that’s kind of been the outlier for these increases has been workers’ compensation. And, in the last 6 months, we have started to see a shift in the market. Carriers’ combined ratios for workers’ compensation has been steadily creeping up and our underwriters are cutting back on the amount of schedule credits that they can apply.
AB: So, business owners are seeing increases across all lines of insurance. And, this is why you’re here to talk about captives as an alternative risk financing strategy for contractors.
So, will you tell us what they are and how they work?
SC: Well, there's two main types of captives. There's single parent captives or member-owned group captives and a single parent is just a fortune 500 company who puts together their own captive for their specific risk. But a member-owned group captive is an insurance company owned and operated by the captive members strictly for the benefit of those members. This structure enables middle-market companies the ability to come together to increase their underwriting credibility through the collective purchasing power of the group. These groups can be related or what we call homogeneous like a trade group or association or unrelated which we would consider heterogeneous which would be companies just similar in size.
AB: Okay so the captive is just a group of companies that have something in common--whether it's industry or their size--that want to pull their resources to get a better deal. What are some of the advantages of joining a group captive for insurance?
SC: Well, in a member–owned group captive, you're taking your company out of the guaranteed cost marketplace. So over time, you're not going to be subject to the ebbs and flows, the highs and lows of the market. Right now, we've kind of, the last 10 years, we've been in a soft market, but that's starting to creep up where all of a sudden rate are starting to go up. And when you join one of these groups, you are going to lower your insurance costs over time because you are best in class. So, this is a risk reward system. So if you have a poor experience, you could be assessed where your premium is higher. Or if you perform, you can be rewarded via dividends based on your loss history.
Also, another benefit is there's increased control over claims management because you are the insurance company and you kind of dictate how the claims are going to be handled. So a lot of our contractors have experienced some sort of fraud and are unhappy with the way the marketplace reacts to that. Well, since you're a member, you can kind of dictate what claims are or not going to be investigated. And you know, the ability to get investment income over time.
AB: Yeah, so if you’re a business owner thinking this may be an option you want to explore, what does the ideal member look like for a group captive?
SC: Companies that have shown a long-term financial strength. Owners and upper level management who are committed to safety and have strong safety programs in place and loss histories or experience modification rates that are significantly better than average in their respective trade. One thing I like to look at is, I'll look at it insureds, five or 10-year average EMR. And if it's in the 70s or 80s, you know, that's a company that's best-in-class and they've been kind of subsidizing the poor risks in the marketplace. So this gives them the ability to kind of stake their own claim and manage their portfolio that way. Also, this is for companies with annual premiums of $150,000 or more in workers' compensation and commercial auto premiums.
AB: All right. So it sounds like the ideal group captive member is a company that has a track record of implementing best practices and safety. So, for these types of companies who are looking to manage their workers’ compensation premium in the foreseeable future, this looks like it a viable option, right?
SC: Absolutely. As we see the workers’ compensation market continue to harden, I believe best-in-class contractors who are looking to control their costs and protect their bottom line may want to consider this alternative risk-financing strategy.
AB: Yeah, so, Sam, if listeners have questions about captive insurance, what’s the best way to get in touch with you?
SC: You can email me at sclayton@ranchomesa.com, or give me a call. My direct line is (619) 937-0167.
AB: All right, well, Sam, thank you for joining me in StudioOne™.
SC: Thanks Alyssa, have a great day.
AB: Thanks for tuning in to our latest episode produced by StudioOne™. If you enjoyed what you heard, please share this episode and subscribe. For more insights like this, visit us at RanchoMesa.com and subscribe to our weekly newsletter.
