Rent a captive can be one of the best insurance options for smaller or high-risk companies that would otherwise pay excessive rates with traditional insurers. Captive insurance was designed by Frederic M. Reiss in the 1950s. His first client, the Youngstown Sheet & Tube Company, had a series of subsidiary mining operations. Because these mines existed solely for the benefit of the parent company, they were termed “captive mines”. When Reiss insured these mining concerns, the policies became known as “captive policies”. Today, pure captives are insurance companies that insure their parent and no other client. Homogeneous captives will ensure a particular industry (like the mining industry, in the example above). Heterogeneous captives insure a diverse clientele.
Homogeneous captives will sometimes provide service to smaller clients who could not otherwise afford to create or participate in a captive. These allow many small to medium companies to have captive insurance. This is especially important for companies that cannot find affordable insurance through the general, traditional lenders. The only major challenge of rent a captive is that clients have fewer rights than the parent company that established the captive. It also offers less participation for similar types of organizations such as associative captives, whose members are also the stockholders. However, a great many companies consider these drawbacks a minor consideration as compared to the ability to getting affordable insurance through a rent a captive arrangement.