Insurance Broker Certification Practice Exam

What is a captive insurer primarily organized to serve?

1. Commercial insurance needs

2. The parent's organization insurance needs

3. The general public insurance needs

4. Other insurers' needs

The correct answer is: The parent's organization insurance needs

A captive insurer is primarily organized to serve the insurance needs of its parent organization. This type of insurer is usually formed by a business or group of businesses to provide coverage for their own risks. By doing so, the parent organization can have more control over the terms of coverage, claims handling, and premium costs while also potentially benefiting from more favorable rates than those available in the conventional insurance market. Captive insurance allows companies to tailor their insurance solutions to fit specific risks and exposures they face. This can include specialized coverages that may not be available through traditional insurers or policies. By insuring their own risks, the parent organization can also retain underwriting profits that might otherwise go to a third-party insurer. In contrast, other options do not accurately reflect the scope and purpose of captive insurers. Captive insurers do not usually cater to commercial insurance needs of unrelated businesses, the general public, or the needs of other insurers. Their primary goal is to address the specific insurance requirements of the parent organization, making them a strategic choice for businesses looking to manage their own risk more actively.